Apollo in Talks to Join Fortress Bid for Grocer Morrison

Apollo Global Management Inc. is in talks to join Fortress Investment Group’s 6.3 billion-pound ($8.6 billion) bid for Wm Morrison Supermarkets Plc and said it won’t make a separate offer for Britain’s fourth-largest grocer.

In a further twist in what is shaping up to be Britain’s largest take-private deal in a decade, Apollo said Tuesday it would support Fortress’ intention to maintain salaries, honor supplier relationships and avoid material sale and leasebacks of Morrison’s extensive property portfolio.

The move by Apollo, which came close to taking majority control of U.K. grocer Asda last year, raises the stakes for private equity firm Clayton, Dubilier & Rice LLC, whose 230 pence-per-share bid was previously rejected by Morrison.

Morrison is attracting takeover interest as it owns about 90% of its almost 500 stores, as well as manufacturing sites. The property portfolio was last valued at about 6 billion pounds, above the company’s market capitalization before news of the CD&R approach was made public.

The business, whose turnaround has been led by Chief Executive Officer Dave Potts, generates large amounts of cash and its finances are solid with low underlying debt and a pension surplus. The fortunes of leading supermarket chains are improving after lockdowns triggered a surge in grocery spending.

What Bloomberg Intelligence Says:

Apollo’s decision to try to join the Fortress consortium bidding 252 pence (plus a 2 pence dividend) for Wm Morrison reduces the chances of a competitive auction for the company, we believe. The unwind of 469 million pounds (5% of the offer’s enterprise value) of excess working capital post-pandemic could still leave room for an increased offer, with Clayton, Dubilier & Rice considering whether to make a bid in excess of its earlier 230 pence approach, according to Bloomberg News.

-- Charles Allen, BI retail, consumer-goods analyst

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

On Friday, Potts had a call with Kwasi Kwarteng, the U.K. secretary of state for business, to discuss the reasons behind Morrison’s decision to recommend the Fortress offer. A spokesman for Morrison said the call was “constructive” and allowed Potts to set out the “importance of the intentions that Fortress has set out; their long-term approach and their understanding of the wider implications of ownership of a unique British business.”

Seeking More

It’s unclear yet how much shareholder support there will be for the Fortress offer. One shareholder, J O Hambro Capital Management Ltd., has already said it believes any offer should be closer to 270 pence a share to merit engagement and consideration.

CD&R still has time to consider its options as Morrison has yet to publish a document containing more information and a timeline for shareholders to vote on the Fortress proposal. Any vote must be within 21 days of the publication of the offer document, according to U.K. takeover panel rules. CD&R then has until at least seven days before the shareholder vote to declare further interest in the grocer.

Formal offer documents detailing the 254 pence-a-share offer from Fortress and its consortium, which also includes the American billionaire Koch family, could come as early as next week, a person familiar said.

HSBC and RBC Capital are advising Fortress and also providing debt funding for the deal. The all cash offer includes more than 3 billion pounds of equity capital. It’s not unusual for private equity firms to bring in other parties to a large deal, particularly to provide more support on the equity funding side.

Apollo’s been interested in British supermarkets for some time. It tried to buy Asda, Britain’s third-largest grocer, but was edged out by the consortium led by the Issa brothers. In recent years, Apollo has struggled in its pursuit of British public companies. It previously lost out on the race to buy U.K. gambling company William Hill Plc and RPC Group Ltd., a plastic-packaging company.

Morrison’s stock fell 0.2% to 262.6 pence as of 11:06 a.m. in London.

©2021 Bloomberg L.P.

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