US investment giant Apollo Global Management has confirmed it is considering launching a rival bid to buy Morrisons, two days after the Bradford-based supermarket chain said it had accepted a £6.3bn offer from another New York private equity firm.
Apollo’s signalling of a possible attempt to hijack the offer from Fortress Investment Group, which comes after months of secret talks, has heightened expectations of a multinational bidding war – sending shares in the British chain soaring by more than 11 per cent on Monday morning.
Having reportedly hired investment bank Morgan Stanley to advise on a potential bid, after being beaten in a race to buy Asda earlier this year, Apollo would become the third firm to throw its hat into the ring in the Morrisons takeover.
Rival buyout firm Clayton, Dubilier & Rice (CD&R), also based in New York, is thought to be considering launching a new bid, after its offer of £5.5bn was rejected last month. The Sunday Telegraph reported senior insiders as saying that CD&R has “plenty more petrol in the tank”.
But Fortress – which has owned Majestic Wine since 2019 – was still tipped on Monday to see off any suitors after giving commitments to preserve the legacy of Morrisons’ founding family, according to The Times.
The paper reported that Morrisons had written to the business secretary, Kwasi Karteng, and a number of local MPs to assure them that both they and Fortress “place very significant emphasis on the wider responsibilities of ownership of Morrisons, including recognising the legacy of Sir Ken Morrison”.
After taking over the Bradford market stall set up in 1899 by his father William Morrison, Ken Morrison opened his first supermarket in 1961, resulting in a chain that now employs more than 110,000 people across the UK.
The Morrison family retain a 5 per cent share of the company, which calls itself “British farming’s single biggest customer” and works with more than 2,200 livestock farmers and 200 growers.
As a result, the chief executive of Morrisons, Andrew Higginson, reportedly met the National Farmers Union’s president, Minette Batters, this weekend in an effort to reassure members the takeover would not impact their profits, while also seeking to convince Morrisons shareholders that Fortress’s offer “represents a fair and recommendable price”.
In a move also thought to be important in convincing investors to approve the takeover, Fortress is reported to have pledged to support the supermarket’s existing strategy, maintain its head office in Bradford, and preserve workers’ pension rights, having also said it is “fully supportive” of Morrisons’ decision to pay employees at least £10 an hour.
“We fully recognise Morrisons’ rich history and the very important role Morrisons plays for colleagues, customers, members of the Morrisons pension schemes, local communities, partner suppliers and farmers,” said Fortress’s managing partner, Joshua Pack.
However, the shadow minister for business and consumers, Seema Malhotra, warned that Morrisons must ensure “crucial commitments to protect the workforce and pension scheme are legally binding”, with the workers’ union Unite also threatening not to cooperate unless there are “unbreakable guarantees” on jobs.
Darren Jones, the Labour chair of the Business, Energy and Industrial Strategy Select Committee, told The Times: “There have been too many examples in the past where private equity owners have underinvested, taken payouts and then left important British retail brands in administration, with workers, pensioners and high streets left high and dry.”
While Morrisons has recommended Fortress’s offer, analyst Richard Hunter suggested “it is perfectly feasible, however, that this is not yet the endgame”.
“UK supermarkets in general are cash-generating engines, whose share price gains have been capped by the costs of the pandemic, despite increased sales, making them more attractive on valuation metrics. In addition, Morrisons largely owns its freehold estate, adding another sweetener to any potential purchase,” said Mr Hunter, head of markets at Interactive Investor.
With Apollo confirming it is “in the preliminary stages of evaluating a possible offer” on behalf of investment firms it manages, albeit having made no formal approach yet to the Morrisons board, Mr Hunter suggested “this could lead to a three-way bidding war, with some speculation that following on from its business relationship with Morrisons, Amazon could even emerge from left field as a surprise last-minute entrant”.
If the deal agreed with Fortress goes through, it will represent the largest private buyout in the UK since the £11bn takeover of Boots in 2007.
Fortress’s offer – worth £9.5bn in total, as it includes debt of £3.2bn – has been made in conjunction with the Canada Pension Plan Investment Board and the property division of Koch Industries.