Business

One of the world’s biggest buyout firms is weighing a spectacular £5.5bn takeover bid for Wm Morrison, Britain’s fourth-largest supermarket chain by market share.

Sky News has learnt that Clayton Dubilier & Rice (CD&R) is in the early stages of evaluating an offer for the grocer, a move that would send fresh shockwaves through the UK’s food retailing industry.

With a workforce of approximately 110,000 people, Morrisons is one of the biggest private sector employers in Britain.

CD&R is said to have begun approaching banks about financing a potential bid for Morrisons in recent days.

It is also understood to have made a preliminary approach to Morrisons’ board.

One source cautioned, however, that a formal bid for the grocer was far from certain and that the public disclosure of CD&R’s interest could force the project to be abandoned.

The Takeover Panel, which polices merger activity involving London-listed companies, is likely to seek clarification from CD&R and Morrisons about whether they are in discussions.

It is possible that the buyout firm would cease work on a deal rather than confirm it publicly, as has happened in other recent UK takeover situations, according to one source.

If it does progress, however, a bid could entail a dramatic re-emergence in Britain’s supermarket sector by Sir Terry Leahy, one of CD&R’s operating partners in Europe.

Sir Terry, who reigned over Tesco for 14 years before retiring in 2010, would be expected to play a key role in a bid.

If a deal is completed, it would potentially reunite Sir Terry with Andrew Higginson and David Potts, Morrisons’ chairman and chief executive respectively, who both spent much of their careers at Tesco.

Further details of CD&R’s interest in Morrisons were unclear this weekend, although based on a conventional takeover premium, any offer would value the company at £5bn or more.

It was also unclear whether CD&R’s interest was being pursued on a standalone basis, or with a strategic or financial partner.

Morrisons had a market value at Friday’s closing share price of £4.3bn, with significant value still remaining in its freehold property portfolio.

Its shares have remained broadly flat during the last year, and are roughly midway between their peak and trough over that period.

Morrisons has a grocery market share of just over 10%, trailing third-placed Asda on 14.4%, according to Kantar, the market research group.

A takeover by CD&R would be the latest seismic deal in Britain’s grocery sector.

In 2019, J Sainsbury and Asda abandoned their attempt to merge into a £15bn retail group after it was blocked by the Competition and Markets Authority (CMA).

That decision spurred Asda’s owner, Walmart, to kick off an auction of the third-biggest supermarket by market share.

Last September, a consortium comprising TDR Capital and EG Group, the petrol stations giant controlled by Mohsin and Zuber Issa, was selected as the preferred bidder for Asda in a £6.8bn deal.

Their takeover was approved by the CMA this week after agreeing to sell 27 Asda petrol stations.

Asda’s new owners are now engaged in the search for a new chief executive to replace Roger Burnley, who will step down in the coming months.

CD&R ranks among the world’s largest private equity investors, having raised $16bn for its latest buyout fund earlier this year.

In the UK, it has been a prolific acquirer of large businesses, including B&M Retail, the discount chain which is now a publicly quoted company, and Motor Fuel Group (MFG), the petrol forecourt operator.

It has also participated in the recent frenzy of private equity bidders for London-listed companies, agreeing a £2.6bn takeover of the pharmaceuticals group UDG Healthcare several weeks ago.

The US-based buyout firm is regarded as a supportive long-term investor in the companies it backs, frequently building significant multibillion dollar enterprises from relatively small initial purchases.

People who have worked with CD&R in the UK say it significantly increased employment at companies including B&M and MFG after investing in their growth.

CD&R is said to have been attracted to Morrisons’ strong balance sheet and management team, although Mr Potts, 64, is expected to retire in the next few years.

The company was founded in 1899 by egg and butter merchant William Morrison at a stall in Bradford Market, it opened its first shop in 1958.

Its maiden supermarket followed three years later and in 1967, it floated on the stock exchange, preceding an unbroken 35-year run of sales growth which ultimately took it into the FTSE-100 index in 2001.

By then, Sir Ken Morrison, William’s son and the company’s veteran boss, had been knighted and in 2004 he engineered the most audacious move in Morrisons’ history: the £3bn takeover of Safeway which transformed it into a major nationwide grocery retailer.

Sir Ken stepped down as chairman in 2008, and he died in 2017 at the age of 85.

Morrisons’ performance stuttered under Dalton Phillips, who was ousted in 2015, leading to the appointment of Mr Potts.

Alongside Mr Higginson, the chief executive has engineered an impressive turnaround, and has signalled that more cash will be returned to shareholders as business normalises in the aftermath of COVID19.

CD&R’s interest in the chain is not the first time that a prospective buyer has examined an offer for Morrisons.

Amazon has been repeatedly rumoured as a suitor, with Morrisons established as a supplier of food products to the online behemoth’s Prime Now and Pantry customers.

Earlier this month, Morrisons was on the receiving end of one of the biggest shareholder revolts in UK corporate history when 70% of investors voted against its pandemic pay packages.

City institutions rebelled over its remuneration committee’s use of discretion to override the exceptional costs incurred by the coronavirus crisis.

Morrison’s saw annual profits slump to £201m last year, having decided – along with other big supermarkets – to hand back £230m in business rates relief to the government.

However, it has predicted that profits will rebound sharply this year and next as COVID-related costs subside.

This week, Tesco warned that sales are likely to fall as shopping behaviour returns to pre-pandemic levels.

CD&R and Morrisons both declined to comment on Saturday.

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