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Morrisons bidder reveals review plan as deal triggers £300m fees bonanza

Morrisons
Morrisons

The private equity firm seeking to snap up Morrisons has unveiled plans for a sweeping review of grocer's property portfolio, as bankers and lawyers prepare to share in a £300m payday if the deal goes ahead.

Fortress said it will conduct "a fuller evaluation of the group and its operations and organisational structure" within six months if its £6.3bn takeover bid succeeds - including a detailed look at the hundreds of freeholds owned by the company.

Although Fortress repeated a reassurance that it does not plan to sell a significant chunk of Morrisons' store estate, the plans are likely to raise concerns among campaigners who fear the bidder will seek to extract as much value as possible while loading the chain up with debt.

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Business Secretary Kwasi Kwarteng on Thursday night voiced his support for the takeover and described it as a “really good prospect”, having previously asked to meet with the grocer’s management to seek assurances about its future.

In an interview with radio station LBC, he said: “Morrisons chairman Andy Higginson talked to me about the deal and I said that this is a vote of confidence to the UK. It is not a bad thing if foreigners want to come and buy really good assets in your country. It means you are attracting capital, you are attracting investments and that creates jobs”.

Fortress' proposals were revealed in a circular for Morrisons investors ahead of a vote on the takeover on August 16. The documents also showed that advisers to the two sides could earn a maximum of £312m in fees.

Bankers, lawyers, spinners and accountants acting for Fortress are in line for up to £263m. Morrisons will spend up to £49m, mostly on fees for advisers at Rothschild, Jefferies and Shore Capital.

Softbank-owned Fortress is leading a consortium that struck a deal with Morrisons' board earlier this month. It has funding from the Canada Pension Plan Investment Board and US billionaire Charles Koch.

Fortress said it will examine the company's long-term real estate strategy, executive pay and strategic options for Morrisons’ petrol stations if it secures shareholder approval.

Morrisons owns 87pc of freeholds for its shops. These could be sold and leased back in an arrangement that would unlock cash for any new owner but also weaken its long-term financial position.

Fortress has repeatedly insisted that it has no plans to sell a significant chunk of the supermarket's property amid shareholder concerns about buyers' intentions for the chain.

However, one senior retail executive said these pledges "don’t have the force of law" and "aren’t worth the paper they're written on". They drew a comparison with US food maker Mondelez, which said it would not close any factories when it bought Cadbury in 2010 but then shut a plant in Bristol months after the deal went through.

The Morrisons bid must be backed by 75pc of shareholders to be successful. Rival US private equity firm Clayton, Dubilier & Rice (CD&R) - which employs former Tesco boss Sir Terry Leahy as an adviser - has until August 9 to make a counterbid after an initial £5.5bn offer was rejected in June.

The Takeover Panel said CD&R should make its intentions clear unless a third party makes another bid before then.

Fellow suitor Apollo said this week it no longer planned to make an individual bid for Morrisons, but added that it was in talks about joining the Fortress bid.

Although the documents made no mention of Apollo, Fortress said the door was still open for other parties to take part.

Morrisons aims to have the takeover become effective on August 26, with a special dividend for investors paid two weeks later.

Its top brass, including boss David Potts, are guaranteed a £14.3m payout from the deal on shares they already own, excluding bonuses.

The retailer, whose first supermarket opened in 1961, employs 110,000 people. It has 497 stores and 339 petrol stations as well as 20 factories and nine distribution centres.

The terms do not include a break fee, but Fortress warned it could pause the deal if the competition regulator or the Government seeks to block it.

Fortress will provide £1.75bn of equity to help finance the deal, while its partners Canada Pension Plan Investment Board will inject almost £1bn and the real estate arm of Koch Industries will provide £500m, according to the offer document. HSBC and Royal Bank of Canada are advising the group and also providing debt funding.

Morrisons said that it and Fortress are also in talks with the trustees of the supermarket's pension schemes. Fortress will indirectly own 78pc of the company, with Koch owning the rest.

Shares closed up 1pc at 267.9p.