Shares in UK supermarket chain Morrisons surged by more than 30% on Monday after the firm said it had rejected an unsolicited £5.5bn bid over the weekend from the US private equity firm Clayton, Dubilier & Rice.
CD&R offered to pay 230p a share in cash. Morrisons’ shares price closed at 178.45p on Friday, valuing the company at £4.3bn, but had risen to 235p in early trade, sparking talk of a bidding war and fears of job losses.
The Morrisons board said the offer “significantly undervalued” the firm and its future prospects. CD&R has until July 17th to make a formal offer. The British firm employs around 120,000 staff, with almost 500 stores in the chain. It also has a significant food manufacturing businesses, including bakeries, abattoirs, fishing fleets and egg farms.
Independent retail analyst Nick Bubb said he believed a deal could be agreed at 250p-260p a share “and after that the focus will increase on a potential breakup of Sainsbury and even Tesco, so it should be a lively day for the sector on the stock market with an additional focus on the bid potential for Sainsbury and Tesco as well”.
“The fact is that the shares have been trading sideways around 180p for much of the last 18 months, despite all the good work that Morrisons have done in developing the wholesaling arm and the occasional Amazon bid rumours.
However, Britain’s main opposition Labour Party said jobs could be at risk if the company fell into the hands of private equity owners – famed for saddling businesses with debt.
Seema Malhotra, the party’s shadow minister for business and consumers, said Britain’s supermarkets “stepped up to serve communities during the pandemic”.
“Our supermarkets that play a role at the heart of our communities need owners that put the long-term interests of the business and its employees first.
“When Debenhams went bust we saw private equity firms walk away while employees lost their jobs and staff who have paid into the pension scheme were left out of pocket. Too often dodgy private equity firms load the companies with debt and leave while pocketing the dividends. This has to end.”
Markets.com analyst Neil Wilson said the offer could “flush Amazon out to finally make an approach”. The US online giant has teamed up with Morrisons to provide a grocery delivery service for its Prime members.
“Morrisons has been undervalued for a while and before today not got nowhere near recovering its pre-pandemic valuation. Owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up. There is a lot of private equity money sniffing around the UK as valuations are low,” he said.
“But its market share of the UK grocery market, its growing wholesale business and its existing tie-up with Amazon surely means it is not impossible the US tech giant will make an offer. However, if Amazon were interested, you’d assume that an offer would have come by now.”