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Morrisons pension bosses push for promises from Fortress as deal rumbles on

·4-min read
A view of a Morrisons supermarket in Stratford, east London
It comes amid concerns from ministers that a takeover could load Morrisons up with debt and reduce pension contributions. Photo: Tolga Akmen/AFP via Getty Images

Supermarket chain Morrisons (MRW.L) has revealed that the trustees of its pension scheme are in discussions with Fortress Investment Group as a takeover deal continues.

In a brief update on Thursday, the UK’s fourth largest grocer said that following the offer on 3 July, from a consortium led by the Softbank (SFTBY) owned firm, Fortress confirmed that “it appreciates the importance of the scheme as key stakeholders in the business”.

"Discussions are continuing with the trustees to agree appropriate mitigation and the trustees have stated their intention to issue their opinion on the Fortress offer in due course," said Morrisons.

It comes after rising concerns from ministers that a takeover could load Morrisons up with debt and reduce pension contributions. Earlier this month, Darren Jones, chair of the Business, Energy and Industrial Strategy Committee, wrote to the Competition and Markets Authority.

He said: “British supermarkets are the latest area of interest for private equity and other buyers using significant amounts of debt. Some stakeholders have raised concerns about what this might mean for the protection of jobs, pension funds and supermarkets' presence on British high streets.

"Whilst activity levels are currently low, I am keen to understand what regulatory oversight is in place to ensure any future transactions protect consumers and workers. I’m therefore asking the Competition and Markets Authority and the Financial Reporting Council for their views on this issue.”

Read more: Why Morrisons has become a takeover target

The grocer’s shareholders will now get to vote on the $6.3bn ($8.7bn) bid on 16 August, in which a court meeting and a general meeting of shareholders will be held. If they vote to go ahead with the deal, Morrisons would cease trading on the London Stock Exchange on 25 August.

If the deal goes through, the bid would be the biggest private equity deal since the takeover of Boots in 2007, which was valued at £11bn.

Fortress, which controls Majestic Wine, has partnered with the Canada Pension Plan Investment Board and the billion US industrialist Koch family. Oppidum Bidco, the newly formed company, announced earlier this month that it had reached agreement with the Morrisons board on the terms of a recommended all cash offer.

Under the deal, Morrisons shareholders will receive 254p a share, comprising 252p in cash and a 2p cash dividend.

Morrisons said that the special dividend would be paid two weeks after the takeover became effective.

Watch: Labour calls on government to intervene in possible Morrisons takeover

Earlier this week Apollo Global Management announced that it was also in talks to become part of the Fortress offer. The New York headquartered firm was considering a bid for Morrisons earlier this month, but confirmed it would no longer be making an offer.

The company, which also expressed interest in buying Asda, the UK’s third largest supermarket, is now looking to become part of the Fortress-led consortium to acquire Morrisons, which operates 500 stores and employs about 118,000 staff in the UK.

Apollo said the discussions “may result in funds managed or advised by Apollo forming part of the investment group led by Fortress for the purposes of the Fortress offer. As a consequence of these discussions, Apollo confirms that it does not intend to make an offer for Morrisons other than as part of the Fortress offer.”

It added: “Apollo notes Fortress’s intentions regarding the Morrisons business and all its stakeholders …Should these discussions lead to any transaction, Apollo would be fully supportive of Fortress’s stated intentions regarding Morrisons.”

Private equity firms have snapped up more British companies in the last 18 months than at any time since the financial crisis, according to data from Dealogic. Figures showed deals totalling more than £50bn during the period.

Read more: Morrisons shares pop 30% as CD&R plots fresh takeover bid

A swoop for Morrisons marked the second time this year that a private equity firm has been involved in the takeover of a UK supermarket, after TDR Capital and billionaire Issa brothers bought a majority stake in Asda from US parent Walmart (WMT). Czech billionaire Daniel Kretinsky also increased his stake in Sainsbury’s to 10% in April.

At the end of last month the grocer turned down a £5.5bn preliminary takeover offer from US private equity firm Clayton Dubilier and Rice (CD&R).

It said that the CD&R offer of 230p a share, which represented a 29% premium to the previous day’s closing price, “significantly undervalued the firm”.

This was despite the move taking on £3.2bn of Morrisons’ debt, taking the total value of any deal to almost £9bn.

CD&R has previously banked £1bn from selling its stake in discount chain B&M, and counts Sir Terry Leahy, the former chief executive of Tesco, as a senior adviser.

Watch: Morrisons agrees to $8.7bn takeover led by Fortress-led group

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