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Morrisons snubs £5.5bn takeover move from US buyout firm

·5-min read
Sir Terry Leahy
Sir Terry Leahy

Supermarket Morrisons has spurned a shock £5.5bn takeover approach from a US buyout firm advised by former Tesco boss Sir Terry Leahy.

The board of the UK's fourth biggest grocer said last night that the "non-binding" 230p a share proposal from New York-based Clayton Dubilier & Rice - a 29pc premium to its closing share price of 178.4p on Friday -"significantly undervalued" the company.

CD&R's pursuit, first reported by Sky News, makes Morrisons the latest supermarket to fall under the takeover spotlight after Asda was snapped up for £6.8bn last year and recent stakebuilding in Sainsbury's by Czech billionaire Daniel Kretinsky.

The US firm, which is working with Goldman Sachs, has until July 17 to make a firm offer for Morrisons and take the supermarket private for the first time since 1967.

Morrisons said the "highly conditional" approach was made six days ago and rejected last Thursday. CD&R confirmed it was “considering a possible cash offer” for the grocer but added that there was “no certainty” of a bid in a brief regulatory statement.

Success would mark a stunning comeback for Sir Terry, who has worked for the company as a senior adviser since 2011, and could reunite him with Morrisons’ chief executive David Potts and chairman Andrew Higginson, who both worked at Tesco.

Sir Terry was at the helm of Tesco for 14 years as chief executive before retiring in 2010 and would be expected to play a key role in the takeover.

The latest move in the sector comes less than a year since the billionaire Issa brothers bought Asda for £6.8bn with private equity firm TDR Capital, following the collapse of Sainsbury’s own £12bn merger with Asda.

Morrisons has been a constant subject of City speculation over a potential takeover, something Mr Potts has previously dismissed.

But its share price has fallen 6pc in the past year despite a sales bonanza for British supermarkets during the pandemic, making it a cheap acquisition target. The stock is lower now than when Mr Potts took over in 2015, although he is widely credited with a revival of the grocer in recent years.

The Bradford-based supermarket has an attractive portfolio of almost 500 stores, the majority of them freeholds, and a burgeoning relationship with Amazon. The chain has been expanding its home delivery tie-up with the e-commerce giant following surging demand for online grocery shopping during the coronavirus crisis.

CD&R is said to have been attracted to Morrisons' strong balance sheet and management team, reports suggest. In 2013, the private equity firm backed billionaire Aurora's brothers B&M discount chain, where Mr Leahy was chairman until 2017.

The private equity firm also owns petrol station giant Motor Fuel Group, which has around 900 sites. CD&R bought rival MFG for £500m in 2015. That same year Morrisons signed a deal to sell food in five petrol station shops owned by MFG, but the tie-up was subsequently abandoned.

Industry sources said that in the past 18 months there have been “smoke signals” in the wider retail market to indicate interest in asset-backed supermarket chains.

In April, Mr Kretinsky, a billionaire investor known as the “Czech sphinx”, also launched a raid on Sainsbury’s – sparking speculation that it could be targeted in a deal to take it private. His Vesa Equity Investments increased its stake in the grocer to almost 10pc by buying shares worth more than £300m from Qatar’s sovereign wealth fund.

Buyout firms have tabled bids for at least 12 UK-listed companies since the start of this year, the biggest surge in private equity bid activity for more than two decades, according to financial data firm Refinitiv.

Morrisons has a share of the grocery market of just over 10pc following increasing competition in recent years from discounters Aldi and Lidl. The firm posted an 8.6pc rise in same-store sales for the year to the end of January.

The Tesco veteran poised to write a new chapter in British retail

Just over a decade ago, Sir Terry Leahy joined the US buyout firm Clayton, Dubilier & Rice (CD&R) as a part-time senior adviser. It was his first big gig since leaving Tesco, writes Laura Onita.

Donald Gogel, CD&R’s chief executive at the time – now the chairman – described him as an “outstanding business leader”, saying that “our portfolio companies will benefit from his experience building and growing an exceptional international company”.

His remarks perhaps never rang truer than they did last night after it emerged that the private equity firm was considering a bid to take Morrisons private. Sir Terry, 65, is expected to help orchestrate the deal.

The retail veteran, who joined Tesco when he was 23, is widely seen as one of the grocer’s most successful chief executives. He took over the helm from Lord MacLaurin in 1997 just as Tesco overtook Sainsbury’s in the race to become the UK’s largest supermarket.

He was one of the first to see the potential of home deliveries and to build tesco.com for online grocery shopping. He was its first marketing director and is credited with the success of its Clubcard loyalty card scheme. He also launched Tesco’s Finest upmarket food label.

Over the years, however, Sir Terry has also received flak from different camps in the business world, with a former chairman of Tesco accusing him in a recent interview of driving the supermarket giant to the brink of ruin with his “arrogant” and “extravagant” management style.

But if CD&R’s bid succeeds, Sir Terry could be about to write a new chapter in British retail.

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