The US buyout firm leading the £10bn race for Morrisons plans to control the supermarket via a company registered in the Cayman Islands, threatening to stoke a row about tax avoidance as big listed companies are snapped up by private investors.
A trail of ownership ending in Grand Cayman was revealed after Clayton, Dubilier & Rice (CD&R) unveiled full details of its recommended bid before a vote by Morrisons shareholders. An entity called Market21 GP Holdings has been lined up in the Caribbean tax haven to exercise control over Britain’s fourth-largest grocer.
The documents also reveal that bankers, lawyers and public relations advisers are due to receive fees of more than £400m if the bid succeeds. Although CD&R’s offer has been recommended by the Morrisons board it is still at risk of challenge by rival buyout firm Fortress.
Neither firm has declared their current bid final and preparations are being made for a dramatic head to head auction that could end in blind bids next month. CD&R’s bid values Morrisons at £9.7bn including debt.
The decision to run the supermarket via an offshore entity comes as Rishi Sunak, the chancellor, is set to hike Britain’s corporate tax rate to 25pc from April 2023. Morrisons paid £47m in UK corporation tax in its latest financial year, down from £60m in 2020.
Kevin Hollinrake, a Conservative MP, said he will be writing to Sir Terry Leahy, the former Tesco boss who is spearheading CD&R’s bid, seeking assurances that the firm will pay UK corporate tax rates on Morrisons’ turnover.
He said: “We should expect CD&R to set out very clearly that they’re going to pay UK rates of corporation tax.”
CD&R defended its planned corporate structure, with a spokesman saying that should the private equity firm assume ownership of Morrisons, it will “remain registered in the UK, headquartered in the UK and continue to pay taxes in the UK”.
Asda, which was acquired last year in a private equity deal led by the Blackburn-based petrol station billionaires the Issa Brothers, is also owned offshore through a vehicle based in Jersey.
Darren Jones, a Labour MP who chairs the Business, Energy and Industrial Strategy Committee, said: “The idea that private equity can just sweep in, buy up British businesses and then move them off-shore to reduce the amount of tax they pay, without any rules or regulatory interventions, is just madness and an insult to British taxpayers.”
The documents for the bid also showed that CD&R could abandon the takeover if the UK’s competition regulator referred the deal for an in-depth “phase two” investigation.
CD&R said it would look to combine its 918 Motor Fuel Group sites with the 339 owned by Morrisons, opening Morrisons convenience stores on the sites. Such a move could potentially face scrutiny from the Competition and Markets Authority.
Meanwhile the buyout firm again insisted it did not intend to offload a “material” chunk of Morrisons’ freeholds. However, these pledges are non-binding.
Similar to Fortress, CD&R said it would embark on a review of the supermarket chain within months, including Morrisons' property portfolio. Morrisons has 497 stores, of which 86pc are freeholds, 20 manufacturing and packing sites and 9 distribution centres.
Last month, pension trustees warned the bidders that the proposed debt-fuelled buyouts would “materially weaken” Morrisons’ ability to support the retirements of 85,000 current and former workers.
The board of Morrisons switched sides at the end of August and recommended investors back the CD&R bid. The directors had previously favoured a £6.7bn offer from Fortress. Both suitors are expected to borrow heavily against Morrisons to fund an acquisition.
Morrisons declined to comment.