Morrison rejects US$7.6b proposal from CD&R

LONDON: Wm Morrison Supermarkets Plc rejected as undervalued an unsolicited proposal from US buyout firm Clayton Dubilier & Rice LLC (CD&R) that valued the UK grocery chain at about £5.5bil (US$7.6bil or RM31.5bil).

Morrison received a proposed cash offer at 230 pence (RM13.24) a share on June 14 and rejected it three days later after discussions with its adviser Rothschild & Co, the company said in an emailed statement.

The proposal is about 29% more than Friday’s close in London, a significant premium for investors nursing a 6.3% decline over the past 12 months.

Private equity investors are seeking to capitalise on the improving fortunes of leading supermarket chains after lockdowns triggered a surge in in-store and online grocery spending.

Morrison and competing UK supermarkets including Tesco Plc and J Sainsbury Plc appear to have weathered the reopening of restaurants well, suggesting that consumer habits may have permanently shifted in their favour.

Chief executive officer Dave Potts is credited with reviving Morrison in recent years, which historically lagged behind the other large grocery chains in Britain. The grocer owns most of its supermarkets, giving it a valuable property portfolio, as well as a number of abattoirs and other manufacturing facilities to produce much of the food it sells.

Still, the potential bid comes at a challenging time for Morrison’s board, which suffered a stinging rebuke from shareholders over executive pay last week. Just over 70% of investors voted against the proposal – in one of the largest protest votes ever against a company’s pay report. The awards will still be made because the vote wasn’t binding.

The US firm has until July 17 to make a formal bid under British takeover rules. CD&R will assess investor reaction and wait for any signs of opposition from the government before deciding its next steps, the Financial Times reported on Sunday, citing people familiar with the situation.

Silchester International Investors, one of Britain’s biggest boutique asset managers, is the largest shareholder in Morrison with a 15% stake. Morrison holders would receive the second-half dividend of 5.11 pence a share under CD&R’s plan.

Britain’s grocery sector has been beset with merger activity in the last few years driven by a highly competitive market. Grocery stores are grappling with the growth in online shopping as well as challenges from German discounters Aldi and Lidl.

Britain’s third-largest grocer, Asda Group Ltd, was taken over by TDR Capital and the Issa brothers in a £6.5bil (RM37.2bil) deal. Walmart Inc, the US retailer which owned Asda since 1999, retains a minority stake.

The Asda transaction came two years after regulators blocked Walmart’s a previous attempt to sell the business to the UK grocer’s bigger rival, Sainsbury.

Elsewhere in Europe, Carrefour SA also faced a short-lived takeover attempt by Canada’s Alimentation Couche-Tard Inc. That effort was torpedoed by the French government which took exception to one of the country’s biggest supermarkets falling into foreign hands.

CD&R is no stranger to UK retail and works closely with senior adviser Terry Leahy, the former CEO of Tesco. Most of Morrison’s top management team are former Tesco employees and worked with Leahy when he was aggressively expanding into Asia and the United States. — Bloomberg

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