The Morrisons Charm Offensive

What’s going on?

The bidding war over Morrisons intensified on Monday, as company after company vies for the eligible British grocery chain’s affections.

What does this mean?

This all kicked off late last month, when Morrisons – which is in a flourishing ecommerce partnership with Amazon – rejected a $7.6 billion takeover bid from a US private equity firm, saying it “significantly undervalued” the business. Then, over the weekend, it agreed in principle to an $8.7 billion offer from a rival group led by SoftBank-owned Fortress Investment.

But on Monday, another private equity firm – Apollo Global Management – mentioned it was thinking about making Morrisons an offer of its own. Clearly it sees a lot of potential in UK grocery store chains: the US-based investment giant was beaten in its bid to buy rival grocery chain Asda last year. And investors must do too: the announcement sent Morrisons’ stock surging 5% beyond Fortress’s offer price on Monday.

Why should I care?

For markets: Morrisons might be a bargain.
The one-two punch of Brexit and the pandemic has had a serious impact on certain British companies’ valuations, which might be why the total value of deals struck by UK private equity firms is at its highest since 2007. Those firms are particularly keen on grocery chains, which have been benefiting from a pandemic-driven surge of in-store and online shopping. In fact, Fortress’s proposed takeover of Morrisons would be the biggest buyout of a British public company in over a decade – and it could get bigger still if other companies push the bidding up even higher.

The bigger picture: Private equity thinks bigger.
Private equity firms don’t just aim to extract value from companies’ operations. In Fortress’s case, it’ll be eyeing up Morrisons’ property portfolio: the retailer owns 85% of its 500-odd stores and fulfilment sites, and that real estate alone is worth around $8 billion – more than the company’s total market value when news of the initial takeover attempt broke.

For information purposes only, not intended to constitute financial advice from us. The customer should assess the risk of  potential loss carefully and individually before investing in any financial products. Dabbl Group Limited is authorised by the FCA under the reference numbers 767263 as an appointed representative of its Principal firm VIBHS Financial Ltd, which is authorised and regulated by the Financial Conduct Authority under the reference number 613381.

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