The US private equity firm Clayton, Dubilier & Rice (CD&R) is set to become the new owner of Morrisons after the grocer’s board backed its £7.1bn bid for the supermarket chain following a tense auction with a rival suitor.
The 287p a share bid narrowly beat the 286p offer by a consortium led by Softbank-owned Fortress Investment Group on Saturday, in a showdown to settle Morrisons’ future.
The Morrisons board, which gathered on Saturday afternoon to consider the results of the three-round auction, said it would unanimously recommend CD&R’s “superior” offer to shareholders, who will vote on the deal later this month. If approved, Morrisons will become a private company, and will no longer trade on the London Stock Exchange.
The auction effectively ends a four-month battle for the grocer, which has dragged on since CD&R, which is being advised by the former Tesco chief executive Sir Terry Leahy, first made an approach in June.
“We are gratified by the recommendation of the Morrisons board and look forward to the shareholder vote to approve the transaction,” Leahy said in a statement. “We continue to believe that Morrisons is an excellent business, with a strong management team, a clear strategy, and good prospects.”
The total value of CD&R’s final offer, when including debt, is worth £9.8bn. The offer cannot be increased unless a new suitor emerges with a firm bid for the supermarket chain.
Morrisons chairman Andrew Higginson said CD&R’s offer was “excellent value” – representing a 61% premium to Morrisons’ closing price of 178p before the firm made its first bid in June – and would protect the “fundamental character of Morrisons for all stakeholders”.
“CD&R have good retail experience, a strong record of developing and growing the businesses in which they invest, and they share our vision and ambition for Morrisons. We remain confident that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business,” he added. “The board is confident that Morrisons will continue to go from strength to strength under CD&R’s ownership.”
Fortress admitted defeat shortly after the bids were made public on Saturday afternoon, with its managing partner Joshua Pack saying he wished the company and all those involved “the very best for the future”.
He added: “The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value.”
CD&R’s pre-auction offer of 285p had already gained the support of the Morrisons board, having promised that the company’s head office would remain in Bradford and confirmed there were no plans to sell off its store estate to raise cash.
The private equity firm also said it was fully supportive of Morrisons’ recent pay award of at least £10 an hour for all colleagues in stores and manufacturing sites, and had reached a deal with pensions trustees in mid-September to provide additional security and support to the scheme, which has 53,600 members. Fortress was reportedly in talks with pension trustees on Friday in an attempt to clinch a similar agreement ahead of the auction.
Unions and politicians have been anxious about the wave of private equity takeovers aimed at UK firms, amid concerns companies would be stripped of their property holdings, loaded up with debt, and worker conditions would deteriorate.
Morrisons employs about 120,000 staff in the UK, including across its 497 supermarkets, as well as factories, farms and a company-owned fishing trawler.
Saturday’s auction, which was managed by the City’s Takeover Panel that oversees the process for mergers and acquisitions in the UK, was triggered after neither bidder declared final offers over the last four months. In order to avoid a draw, Fortress had been asked to put forward a final bid with an “even” number of pence, while CD&R was told to offer a bid with an “odd” number.
Shareholders will vote on the offer on 19 October.