LONDON (Reuters) - The U.S. private equity firm trying to buy Morrisons should increase its offer to around 6.5 billion pounds ($9 billion) to merit engagement from the British supermarket's board, according to a top ten shareholder in the retailer.
Morrisons - Britain's fourth largest grocer after Tesco, Sainsbury's and Asda - this month rejected a proposed 5.52 billion pound cash offer from Clayton, Dubilier & Rice (CD&R), equivalent to 230 pence a share.
"In our view there is validity to a bid...," said JO Hambro, which manages funds accounting for 3% of Morrisons. "We believe any offer for the group approaching 270p per share merits engagement and consideration."
Shares in Morrisons were down 0.17% at 235.6 pence at 1100 GMT.
JO Hambro noted CD&R's existing ownership of petrol forecourt group Motor Fuels Group (MFG).
It said if CD&R were to buy Morrisons, the combined group would have around 1,200 forecourt sites across the UK.
"The fuel purchasing and food retailing synergies here are clear to see. But CD&R should pay a fair price in order to access those synergies," JO Hambro said.
It said it believed a valuation of 8 times earnings before interest, tax, depreciation and amortisation (EBITDA) "seems reasonable given the group's qualities and the potential synergies on offer."
Analysts expect CD&R to come back with a higher offer and believe other suitors could be flushed out, including possibly Amazon, which has a partnership deal with Morrisons.
A spokesperson for CD&R declined to comment.
Last week Legal & General Investment Management (LGIM), which Refinitiv data shows as having a 1.58% stake in Morrisons, said it did not expect a bid at 230 pence to succeed.
Silchester, Morrisons' biggest shareholder with a stake of 15.2% according to Refinitiv data, has declined to comment.
($1 = 0.7212 pounds)
(Reporting by James Davey; editing by John Stonestreet)