United Kingdom

Private equity predators told to raise their bid for Morrisons

The buyout barons circling Morrisons have been told to raise their bid by at least £1.2billion if they want a chance at buying the supermarket.

Clayton, Dubilier & Rice (CDR) swooped on the grocer with a £5.5billion bid worth 230p per share last week – but the offer has been spurned for being too low.

And City brokers yesterday said the private equity firm would have to dramatically raise the stakes if it is serious about buying Morrisons.

Clayton, Dubilier & Rice swooped on the Morrisons with a £5.5bn bid worth 230p per share last week - but the offer has been spurned for being too low

They said the supermarket’s board, led by chairman Andy Higginson, was unlikely to negotiate unless the bid was upped to at least 280p a share.

That would take the overall value of the offer to more than £6.7billion, an increase of £1.2billion. Morrisons’ shares leapt more than 30 per cent higher on Monday after news of CDR’s advances emerged, indicating that investors believe a bidding war could erupt.

Yesterday, they fell 1 per cent to 237.8p, valuing the business at £5.7billion.

Amid speculation about who could come forward, number one shareholder Silchester, which is led by star fund manager Stephen Butt and owns 15.2 per cent, is expected to be the kingmaker.

Butt, 70, will probably cast the deciding vote on whether a takeover goes ahead. He set up the fund in 1994 with former colleagues from investment bank Morgan Stanley and is one of Britain’s wealthiest fund managers. 

He is previously estimated to have amassed a fortune of more than £700million and paid himself at least £27million in 2019.

A big fan to the arts, he has donated to the Royal Ballet School, the Natural History Museum and the Royal Academy of Music.

His firm describes itself as a long-term investor. It was previously a top investor in defence giant Cobham and urged the firm’s board to reject a £4billion takeover by private equity firm Advent International and hold out for a higher offer.

Kingmaker: Morrisons's number one shareholder Silchester  is led by star fund manager Stephen Butt (pictured)

Legal & General, the 11th-biggest shareholder in Morrisons with 2.8 per cent, opposes the CDR bid on the grounds that it undervalues the company.

CDR counts former Tesco boss Sir Terry Leahy – a retail industry giant – as a top adviser and its European boss, David Novak, is thought to be leading deal talks.

But the pair and other potential rivals ‘have to offer more’ if they want to engage, one broker close to the supermarket said.

‘Private equity has deep pockets and investors know this,’ the broker said. Silchester won’t even begin discussions until there is a premium offer made.

‘Leahy and CDR need to get Silchester interested if they are to progress. It will be very interesting to see what they come back with.’

Yesterday, politicians waded in, saying a takeover should be subject to tough scrutiny to protect food supplies and jobs. 

Seema Malhotra MP, shadow minister for business and consumers, said supermarkets must not ‘be scrapped for parts’.

She added: ‘It is far too often the employees, pensioners and the taxpayer who are left to pick up the pieces and pay.

‘The Government cannot just stand by and let that happen to Britain’s supermarkets.’

Turning down the bid on Saturday, Morrisons’ board said it ‘concluded that the proposal significantly undervalued Morrisons and its future prospects’.

Other potential bidders include the internet shopping behemoth Amazon, which already partners with Morrisons to sell food online, as well as fellow buyout firms, KKR, Lone Star and Apollo.

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