A $53 Billion U.S. Buyout Firm Leads Morrison Takeover Fight

An investor group backed by a SoftBank subsidiary, America’s billionaire Koch family and others is positioning itself as the white knight riding to the rescue of Wm Morrison Supermarkets Plc.

Now comes the job of persuading investors, customers and politicians that a foreign private equity takeover of Britain’s fourth-biggest grocery chain is in their interests.

The supermarket operator agreed to a takeover for about 6.3 billion pounds ($8.7 billion) from the consortium led by Fortress Investment Group after turning down a lower bid from Clayton Dubilier & Rice in June. Although even higher offers may still emerge, Morrison is already listing reasons to support Fortress.

“They are backing our management, our strategy and our people,” Chief Executive Officer Dave Potts, 64, told Bloomberg News by phone on Saturday about the private equity group. “Fortress can see the value in the Morrison’s business.”

Potts also did a livestream with some of Morrison’s 113,000 employees to discuss the Fortress offer.

Rising Fortunes

The fight for Morrison highlights continued interest in Britain’s supermarkets following the 6.5 billion-pound buyout of Asda, the U.K.’s third-largest grocer. Private equity investors want to capitalize on the improving fortunes of leading chains after lockdowns triggered a surge of in-store and online grocery spending. A takeover of Morrison will be the largest buyout of a U.K.-listed company in at least a decade, according to data compiled by Bloomberg News.

Morrison rejected CD&R’s all-cash offer of about 5.5 billion pounds three days after receiving it on June 14, but the investor group led by Fortress has been speaking to the grocery company since May and made five offers during the period, people familiar with the matter said.

Announcing its agreement Saturday, the consortium outlined commitments that included maintaining pay and pensions for Morrison’s employees in an attempt to head off political opposition to the deal. U.K. lawmakers have already called on the government to intervene in any takeover for the grocer. Morrison is based in Bradford, West Yorkshire, a longtime Labour Party stronghold where Prime Minister Boris Johnson’s Conservatives made big gains in the most recent national election.

The takeover battle comes at a time of increased scrutiny and media attention over private equity firms snapping up listed companies in the U.K. at a record pace.

Labor Concerns

Unite, the labor union representing Morrison workers, called for urgent talks with the grocer’s management to seek guarantees on topics including jobs in response to the Fortress buyout.

“We won’t allow another takeover of a strong U.K. business see the workers trampled over as the boardroom and shareholders stampede towards their bonanzas,” Unite said in a statement.

Wes Edens, co-CEO of Fortress, is already an investor in the U.K. as the joint owner of the Premier League soccer club Aston Villa.

Founded by Edens and Randy Nardone in 1998, Fortress has operated independently from SoftBank Group since Masayoshi Son’s conglomerate bought it for $3.3 billion in 2017. The firm counts former Goldman Sachs Group Inc. banker Christopher Linkas and ex-Deutsche Bank AG analyst Rahul Ahuja among its London staff, according to LinkedIn. It has about $53 billion in assets under management.

Koch Industries

Others in the consortium to buy Morrison include the Toronto-based Canada Pension Plan Investment Board and the real estate arm of Koch Industries Inc., one of the largest U.S. privately held companies. Chairman/CEO Charles Koch and his extended family have a combined fortune of more than $120 billion, according to the Bloomberg Billionaires Index, and are well known supporters of conservative and libertarian political causes.

HSBC and RBC Capital are advising Fortress and also providing debt funding for the deal.

Morrison hasn’t yet spoken to the government about the Fortress deal but intends to start the process now, a person familiar said. In its statement, the firm said it doesn’t intend to carry out any material sale-and-leasebacks of Morrison almost 500 stores.

By contrast, people familiar with CD&R’s bid last month for Morrison said the firm was interested in sale-and-leasebacks of the grocer’s stores, a strategy that attracted the likes of TDR Group to Walmart’s Asda supermarkets last year.

Morrison’s freehold real estate portfolio is the “bedrock” of its business, said Potts.

A $53 Billion U.S. Buyout Firm Leads Morrison Takeover Fight

“There is nothing I have seen so far that would make me not trust what I have learnt about Fortress and the commitments they are making,” Potts said.

The Fortress-led offer represents a premium of about 42% to the closing price of 178 pence per Morrison share as of June 18, the final day of trading before the start of the offer period.

That’s below the 270 pence per share range some of Morrison’s top investors had been asking for to engage with CD&R, so there is potential for counter-bids. Last month, CD&R was already lining up more financing banks as it considers raising its offer, people with knowledge of the matter said.

CD&R has led two of the ten purchases of U.K.-listed companies this year. The New York-based firm agreed to buy UDG Healthcare Plc in June after a sweetened offer of about 2.8 billion pounds, and in February acquired plumbing business Wolseley UK from Ferguson Plc for 308 million pounds. Officials with CD&R declined to comment on Saturday.

For now, Potts is focusing on the Fortress bid and awaits the response from Morrison shareholders.

“We will see where life takes us now,” he said.

©2021 Bloomberg L.P.

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