Daily Management Review

Takeover Proposal From CD&R Of $7.6 Bln Rejected By UK's Morrisons


Takeover Proposal From CD&R Of $7.6 Bln Rejected By UK's Morrisons
A proposed cash offer of 5.52 billion pound ($7.62 billion) by the United States based private equity firm Clayton, Dubilier & Rice (CD&R) for the British supermarket group Morrisons have been rejected by the later as it said that the offer was far too low.
It received the "unsolicited, highly conditional non-binding" proposal of 230 pence a share, said the fourth largest grocer of Britain by sales after Tesco, Sainsbury's and Asda.
The proposal was rejected by the board of Bradford, northern England-based Morrisons.
"The board of Morrisons evaluated the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects," the group said in a statement on Saturday.
Over the past year, there has been a drop of 5.5 per cent yin the stock price of Morrisons and the group was last valued at around 4.33 billion pounds.
CD&R's proposal also included providing Morrisons shareholders to also still receive a final ordinary dividend of 5.11 pence per share announced on March 11, Morrisons said. It was considering a possible cash offer for Morrisons, CD&R had said earlier.
Under British takeover rules CD&R has until July 17 to announce a firm intention to make an offer.
The ability of supermarkets of the United Kingdom to generate cash as well as their freehold assets have increased the interest of private equity firms for such supermarket assets which is underscored by the offer from CD&R.
A majority stake in Asda was purchased from Walmart by Zuber and Mohsin Issa and private equity firm TDR Capital in February this year. That deal set a value for the UK supermarket group at 6.8 billion pounds.
Prior to that deal was the failed attempt in 2019 by Sainsbury's to take over Asda even after both parties agreeing on a deal because of the resistance from the competition regulator of Britain.
There is an existing partnership between Morrisons and Amazon and some have even predicted that the United States largest e-commerce company in the world could also turn out to be a potential bidder for British supermarket.
Terry Leahy, the former Tesco CEO who is a senior adviser to CD&R, could also be involved in a formal bid from CD&R. When Leahy was a honcho at Tesco, he was the boss of Andrew Higginson and David Potts who now have the role of chairman and CEO respectively at Morrisons.
Morrisons, which has about 500 stores and has 118,000 staff – which makes it one of the largest employers in the private sector, has also attained a special place among British supermarket companies because it makes more than half of the fresh food it sells itself.
The company reported an almost 50 per cent drop in its annual profits in March this year primarily because of the costs that it had to incur because of the Covid-19 pandemic. The company however forecast a rebound in the 2021-22 year.