Clayton, Dubilier & Rice makes bid for Morrisons

US private equity group Clayton, Dubilier & Rice has bid to acquire supermarket chain Wm Morrison in a deal that would take Britain’s fourth-largest grocer private, according to two people with direct knowledge of the matter. 

One of these people said that the board of Morrisons, which has a market value of £4.3bn and £3.2bn in net debt, was meeting on Saturday to discuss the merits of the approach. Morrisons, which is working with Rothschilds, and CD&R declined to comment.

CD&R is working with Goldman Sachs on its bid, another person added. A statement clarifying its intentions could be released later on Saturday.

The exact value of an offer could not be immediately learnt but Sky News reported that CD&R was weighing a bid for Morrisons that would value the company at around £5.5bn. 

The approach highlights private equity’s growing appetite for UK assets and in particular, supermarket chains.

Buyout groups have announced bids for at least 12 UK-listed companies since the start of this year, as Brexit and the pandemic weigh on share prices. It is the fastest pace of take-private attempts for more than two decades, figures from Refinitiv show. 

The CD&R approach comes as competition regulators this week cleared a £6.8bn deal by the owners of petrol station retailer EG Group, billionaire brothers Mohsin and Zuber Issa and private equity firm TDR Capital, to buy the UK’s third-largest supermarket chain Asda. 

CD&R counts Sir Terry Leahy, the former chief executive of Tesco, among its advisers. Andrew Higginson, the current Morrisons chair, worked alongside Leahy at Tesco for many years. It is also an investor in EG Group’s petrol station rival, Motor Fuel Group. 

The management team at Morrisons led by chief executive Dave Potts, has attempted to turn around the performance of the business since 2015, including by striking partnerships with Amazon and Deliveroo.

However, the market has not rewarded them. Shares are lower now than they were when Potts took over and have fallen 6.3 per cent over the past year, compared with a rise of 11.5 per cent in the FTSE 100 index of top UK companies in which it was a constituent until earlier this year when it was relegated.

Earlier this month, 70 per cent of shareholders rejected its pay arrangements. 

In the year to the end of January, the company reported an 8 per cent increase in same-store sales although total revenue grew only 0.4 per cent to £17.5bn because of sharply lower fuel sales.

Covid-related costs affected profits, with net income rising 0.5 per cent to £96m. It employs 118,000 staff, according to Capital IQ. 

Analysts have long speculated that the group might fall to a bidder attracted to its cash generation and, like third-placed Asda, a high proportion of freehold stores.

CD&R has been among the more active private equity firms in the UK market this year, agreeing a £2.8bn deal to buy the UK-listed healthcare services group UDG and a £308m deal for Wolseley, the plumbing business. 

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