Morrisons rejects £5.5bn takeover approach by private equity firm

Grocery giant Morrisons has rejected a £5.5billion takeover approach by a US private equity firm advised by former Tesco boss Sir Terry Leahy. 

Responding to speculation about a possible bid by Clayton, Dubilier & Rice, the Morrisons board said last night the proposal ‘significantly undervalued Morrisons and its future prospects’. 

Morrisons said it had initially received an ‘unsolicited and highly conditional nonbinding proposal’ last Monday at 230p a share. 

It said a number of preconditions were attached, including the completion of detailed due diligence and the arrangement of debt financing. 

Rejection: Morrisons board said the proposal ‘significantly undervalued Morrisons and its future prospects’ 

The statement by CD&R followed a Sky News report that it had made a preliminary approach to the supermarket group’s board and had already begun contacting banks to drum up financial backing for the plan in recent days. 

Morrisons, which has evaluated the proposal with its financial adviser Rothschild, said the board had ‘unanimously concluded’ the cash offer was inadequate and had privately rejected it on Thursday. 

Morrisons is run by former Tesco executives Andrew Higginson and David Potts – currently chairman and chief executive of the Bradford-based chain – who both worked closely with Leahy during their time at Tesco. 

Leahy is likely to be closely involved with completing any deal should CD&R pursue its interest in the grocer.

 The dramatic sequence of events is the latest seismic shift in the supermarket sector after the little-known Issa brothers acquired Asda from Walmart in a £6.8billion swoop last year. The deal was approved by the Competition & Markets Authority last week.

Private equity giants and business tycoons are attracted by the stable returns and vast property assets, which CD&R could sell to make a quick return.

But any attempt to buy Morrisons, one of the biggest private sector employers in the country with 110,000 staff, would attract intense public scrutiny. 

CD&R said in its statement there was no certainty a formal offer would be made. It has 28 days to formalise its approach. It could alternatively increase its offer price in light of the rejection or else walk away. 

Morrisons share price has flatlined so far this year and closed at £1.82 on Friday, valuing the business at £4.3 billion. 

Despite that, it is certain investors would likely demand a significant premium to hand the business over, given the strong property asset base. 

Amazon, a partner to Morrison, has persistently been linked to a possible bid. It has also been suggested that former Asda suitors Apollo Global Management and Lone Star could return with a bid for another supermarket after failing to acquire the Leeds-based group last year. 

Shares in other supermarkets, including Sainsbury’s where ‘Czech Sphinx’ billionaire Daniel Kretinsky has a 10 per cent stake, are likely to rise tomorrow on the news.