Apollo participates in takeover battle of Morrisons in England

London — When a third private equity group joined the dispute on Monday, the $ 8.7 billion bid dispute against Morrisons in the UK intensified and the supermarket group’s share price exceeded the value of the offer recommended on Saturday.

New York-based Apollo Global Management, which missed the acquisition of Morrisons rival Asda last year, said it was in the process of assessing the potential of the proposal but was not close to its board of directors.

Private-equity groups have begun spending on assets around the world in the last six months and have been filled with cash after a significant pandemic has been eliminated. The target is Morrisons, which was founded 122 years ago as a stall in northern England.

Morrisons said on Saturday that a board of directors led by Chairman Andrew Higginson recommended a takeover led by Softbank-owned Fortress Investment Group and valued the grocery store at £ 6.3 billion ($ 8.7 billion). ..

The offer from Fortress, along with Canada Pension Plan Investment Board and Koch Real Estate Investments, surpassed Morrisons’ £ 5.52 billion unsolicited offer from Clayton, Dubilier & Rice (CD & R), which it rejected on June 19.

But last week it was less than £ 6.5bn requested by Morrisons’ top 10 investor JO Hambro.

The fortress offer brings Morrisons a corporate value of £ 9.5bn, including a net debt of £ 3.2bn.

It rose 11.2% at 267p at 09:35 GMT. This is above the 254p value of fortress trading, indicating that investors are expecting higher offers. Morrisons declined to comment on Apollo’s statement.

Analysts speculate that Amazon, which has long-standing supplier contracts with other private-equity groups and Morrisons, can also bid. Amazon declined to comment.

The UK has always been a major destination for private-equity investment, but its volume peaked this year as Brexit and weak Sterling, combined with the coronavirus crisis, hurt corporate valuation.

Like its peers Tesco, Sainsbury’s and Asda, Morrisons has been forced to shut down hospitality, resulting in a surge in sales over the past 18 months, but the cost of increasing online distribution has impacted profits.

Ultimately, its fate is determined by its shareholders.

In the current situation, there is only one bid on the table and investors vote for the fortress deal.

Morrisons’ three largest investors, Sylchester, BlackRock and Columbia Red Needle, are effectively kingmakers with 15.2%, 9.6% and 9.4% stakes, respectively, according to Refinitiv data. There are no comments so far.

Under UK takeover rules, Fortress’ offer effectively reset the clock to clarify the CD & R intent, and the date before July 17 was extended to around the end of the month.

The Takeover Panel has not yet announced a deadline for Apollo to clarify its intentions.

“Currently, 254p seems to be probably the minimum, and we’re not going to rule out the possibility of further price increases,” Barclays analysts said.

Appetite for grocery stores

Barclays said CD & R can pay more than the agreed offer from Fortress, noting that CD & R has a larger UK retail footprint than Fortress because it owns the Motor Fuels Group’s petrol vestibule chain. Did. Also, if the sale and leaseback of Morrisons stores is part of the plan, CD & R may be able to place more bids.

The fortress says it likes to exclude the sale of materials and empower existing management teams. This is an approach that could become popular with the government after the pandemic has shown the importance of maintaining local food production.

Morrisons owns 85% of its approximately 500 stores, most of which have 19 free-owned manufacturing sites. It is unique among British supermarkets in that it manufactures more than half of the fresh food it sells.

After years of working with German discount rivals Aldi and Lidl, British supermarkets are once again attractive for cash generation and free-holding assets. The fund believes that the stock market is unaware of the value of grocery stores following the COVID-19 pandemic.

Morrisons began as an egg and butter merchant in 1899 and was built over 55 years by the late Ken Morrison, the son of the founder.

Last year, Apollo failed to acquire Asda as the Zuba brothers, the Mosin Issa brothers, and TDR Capital. The deal valued Asda at £ 6.8 billion.

Tesco and Sainsbury’s shares have risen 1.5% and 1.9%, respectively, and speculation is swirling that they may attract approaches. Both companies declined to comment.

In April, Czech billionaire Daniel Cretinsky raised its stake in Sainsbury’s to nearly 10%, igniting bid speculation.

By the end of March 2021, the private-equity business had over $ 89 billion in assets under management at 150 companies, including Watches of Switzerland, TMT Group Endemol Shine, bookmaker Ladbrokes Coral and Norwegian Cruise Line, according to Apollo. Was there.

James Davy

Posted on