CD&R Gets Morrison Board Support for Raised $9.5 Billion Bid

Clayton Dubilier & Rice LLC raised its offer for Wm Morrison Supermarkets Plc to 7 billion pounds ($9.5 billion) as the bidding war with Fortress Group to win control of Britain’s fourth-largest grocer intensifies. 

After weeks of speculation as to whether it would increase its offer, the U.S. private equity group offered to pay 285 pence a share for the Bradford, U.K.-based grocer. That’s above the 272 pence-a-share offer from the Fortress-led consortium and CD&R’s prior offer that was rejected by Morrison in June.

Shares in Morrison rose nearly 5% to 292.50 pence in early London trading on Friday, suggesting investors expect Fortress to return with an even higher offer. In a statement after CD&R disclosed its new bid on Thursday evening, Fortress said it’s considering its options and Morrison shareholders should “take no action.” 

CD&R Gets Morrison Board Support for Raised $9.5 Billion Bid

In a sign of its intentions to win the battle for Morrison, CD&R also pledged to support the grocer’s existing management, its relationships with suppliers and its terms on employee pay and pensions. The private equity firm promised not to carry out material sales and leasebacks of the grocer’s extensive real estate portfolio. This largely matches similar commitments made by the rival Fortress consortium. 

Directors at Morrison have unanimously withdrawn their recommendation for the Fortress bid and are now backing the offer from CD&R, which came on the eve of a “put up or shut up” deadline.

‘Trusted Partner’

“CD&R is widely recognized for being a trusted partner to the management teams of the businesses in which it invests and for providing ongoing support to help them innovate, develop, and grow their operations,” the company said.

Buyout firms are vying for the British grocer in part because of its valuable real estate portfolio -- it owns about 90% of its almost 500 stores as well as some manufacturing facilities. The business, led by Chief Executive Officer David Potts, also generates large amounts of cash, has low underlying debt and a large pension surplus. Morrison and rival supermarkets have benefited from improved online and store sales after lockdowns triggered a surge in grocery spending and changed shopping habits.

Among those leading CD&R’s bid is former Tesco Plc CEO Terry Leahy, who worked with Potts at Britain’s largest supermarket operator. Potts left Tesco, where he spent most of his career, after he failed to get the top job when Leahy resigned in 2010. Many of Morrison’s top management team are also ex-employees of Tesco and worked under Leahy when he was aggressively expanding into the U.S. and Asia. 

Leahy said in a video message that he knew the grocer’s late founder Ken Morrison well and “I understood his value and vision” as he promised that CD&R will support “Morrison’s distinctive business model.” Morrison holds a distinct position in the U.K. grocery sector as it has a large wholesale division that makes nearly half of all the food the company sells. The supermarket is also British farming’s biggest single customer, working directly with more than 2,200 livestock farmers and more than 200 growers. 

Equity, Debt

The offer from CD&R will be funded with more than 3.4 billion pounds of equity from funds managed by the private equity firm. Debt finance will be provided by Goldman Sachs, Bank of America, Mizuho and BNP Paribas. 

The improved offer from CD&R could be welcome news for Morrison’s shareholders, some of whom -- including the largest investor, Silchester International -- have been vocal about wanting what they call a fair price for the grocer. 

The Fortress bidding group includes the billionaire Koch family, the Canada Pension Plan Investment Board and Singapore sovereign wealth fund GIC. 

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