ALEX BRUMMER: Private equity threatens the nation’s food security

The leap in Morrisons shares reminds one of the City adage that in the end it is all about price. At one level this is true. 

The revised market valuations, for not just Morrisons but for the whole grocery sector, speak loudly to how the markets can be wrong.

What has been missed is the way the grocers and food supply industry played a blinder in the pandemic. The rise of their tech-driven delivery services has been amazing.

Morrisons is part of the trend, with digital sales up a phenomenal 119 per cent in the last quarter.

Private equity marauders Clayton, Dubilier & Rice (CDR) obviously feel they have an ace in the hole with the assault of Morrisons, in the shape of former Tesco boss Terry Leahy.

The taciturn Liverpudlian has great foresight. He saw superstores, the switch to convenience shopping and the lure of the Pacific long before anyone mentioned global Britain. But it is a mistake to put himself front and centre in an attempt to take Morrisons off the public shelves and hide it away in a dark store.

Morrisons lacks heft in the convenience space. Leahy plans to deliver this by taking it private and linking it with the 900 service station Motor Fuel Group he looks after. That looks back to front.

What differentiates Morrisons from the pack is its Northern credentials and its critical role in Britain’s food production. It owns 19 food production centres supplying its near 500 stores with meat, eggs and flour. 

Most of this is sourced from British farms. As such, it is responsible for some 25 per cent of the UK’s food production, making it the second largest supplier in the nation.

In the last few weeks the farm and food lobby in Britain has bleated endlessly about the threat of the Aussie trade deal. 

The National Farmers Union and others will have much more to worry about if private equity, laden with debt, grabs hold of a large part of UK’s grocery supply chain, threatening the nation’s food security.

David Novak, who heads CDR operations, has a history of working with family-founded firms such as B&M. But the late Ken Morrison’s heirs control just 5 per cent of the enterprise he is targeting. 

The company’s biggest investor is the enigmatic asset manager Silchester, which built up a 15 per cent stake which suddenly has become very valuable. Legal & General has sent an important early signal by opposing the current offer.

CDR wants to test the political vibes with its unsolicited bud worth 230p a share, or £5.52billion – or more than £8.7billion when debt is added.

By so doing it has placed itself in the firing line of Red Wall Tory MPs, the farming and food production industry and those interested in the nation’s food security. No deal for Morrisons should escape full scrutiny.

Whether CDR or any future bidder has the stomach for a public, high-profile and bare knuckle fight is yet to be fully tested.

Dog fight

Senior plc chairman Ian King has a history of failing to resist overseas takeovers.

As chief executive of BAE he was defeated in the attempt to merge Britain’s top defence contractor BAE with Airbus maker EADS. 

On a mini-scale he has been better at aerospace components maker Senior, having turned back four offers from private equity outfit Lone Star Global.

The latest, described as the fifth and final, is worth 200p a share, and values Senior at £838.8million.

If King and his board accept, they will join a gallery of shame which has sold UK aerospace industry down the river. 

Among those taking the shilling from the locusts are Cobham, Inmarsat and private jet services firm Signature Aviation.

Even if the board does capitulate that should not be the end. The Lone Star bid should fall directly under the purview of the National Security & Investment Act and could take months, if not longer, to clear.

By then the crisis in the skies, which attracted low-ball offers, could be over.

Life saver

Glaxosmithkline boss Emma Walmsley will seek to defend the pharma champion against the destabilising efforts of activist investor Elliott this week.

So it is useful that it has just revealed that a new compound, sotrovimab, developed with Vir Biotechnology, reduces hospitalisations and cuts adult death rates among Covid-19 patients.

Every little helps.