Watch: Morrisons shares surge 30% after it spurns £5.5bn takeover offer
Supermarket chain Morrisons (MRW.L) is gearing up for takeover negotiations, even as it rejected a £5.5bn ($7.6bn) bid from US private equity giant Clayton Dubilier & Rice (CD&R) at the weekend.
Shares in the grocer jumped more than 30% at the open in London following the news.
People close to the transaction told the FT that CD&R is likely to push ahead with an offer, which was rejected because Morrisons said it "significantly" undervalued the firm.
CD&R released a statement confirming that under takeover rules it has until 17 July to firm up its intentions.
"CD&R aren’t going away and we suspect a deal can be done in the 250p-260p area, so it should be a lively day for the sector on the stockmarket today, with an additional focus on the bid potential for Sainsbury and Tesco as well," said Nick Bubb, retailing analyst and consultant.
Morrisons admitted on Saturday evening it had received the "unsolicited" and conditional cash offer from CD&R of 230 pence per share last Monday after Sky News reported the grocer was approached.
Britain's fourth largest supermarket said in a statement that its board had evaluated CD&R's conditional proposal along with its financial adviser, Rothschild & Co.
It said Morrisons's board members "unanimously concluded" the offer "significantly undervalued Morrisons and its future prospects" and rejected it on 17 June.
CD&R has issued a statement confirming a possible cash bid and has until 17 July to announce a firm intention to make an offer under UK takeover rules.
Sales at the FTSE 250 (^FTMC) firm increased by 2.7% in the 14 weeks to 9 May, but the supermarket chain had faced a £27m bill for COVID-related costs in the three months prior.
The blockbuster move by CD&R — one of the biggest takeover firms in the world — would have been one of the UK's most high profile bids in the past year.
There was speculation in the market about Amazon's (AMZN) position on the deal.
"[Morrisons] owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up (think Toys R Us...)," said Neil Wilson, chief market analyst at Markets.com.
"There is a lot of PE money sniffing around the UK as valuations are low – we knew this before the pandemic. 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."
It follows a flurry of American private equity interest in UK firms.
In February, Zuber and Mohsin Issa and private equity firm TDR Capital purchased a majority stake in Asda from Walmart (WMT) in a deal worth £6.8bn.
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