CD&R Lines Up Banks as It Weighs Bumping Morrison Bid

Clayton Dubilier & Rice is lining up more financing banks as it considers raising its 5.5 billion-pound ($7.6 billion) offer for British grocer Wm Morrison Supermarkets Plc, people with knowledge of the matter said.

The private equity firm has approached a number of lenders about joining the financing for the potential acquisition, the people said, asking not to be identified discussing confidential information. To gain a competitive edge, acquirers sometimes hire as many banks as possible to make it harder for potential counter bidders to line up advisers and financing.

CD&R earlier this month saw a 230 pence-per-share offer for Morrison rejected as being too low. The grocer’s shares have since been trading higher on expectations of an increased bid. Morrison stock rose as much as 6.7% in London Wednesday. It was trading at 248.30 pence at 4:05 p.m., giving the company a market value of 6 billion pounds.

Top 10 Morrison investor J O Hambro Capital Management Ltd. said the supermarket operator should engage with the private equity firm if it returns with a proposal closer to 270 pence per share, Bloomberg News reported.

Under British takeover rules, CD&R has until July 17 to make a formal bid. Deliberations are ongoing, and CD&R hasn’t made a final decision on whether to proceed with an improved offer, the people said. A spokesperson for CD&R declined to comment, while a representative for Morrison didn’t immediately provide comment.

Sector Expertise

CD&R is no stranger to U.K. retail and works closely with senior adviser Terry Leahy, the former chief executive officer of Tesco. Most of Morrison’s top management team are former Tesco employees and worked with Leahy when he was aggressively expanding into Asia and the U.S.

“Armed with a management team with intimate knowledge of U.K. supermarkets (and likely a meticulous gameplan), we consider it implausible that CD&R would arrive unannounced with only an unworkable offer level,” analysts at United First Partners LLP wrote in a research note Wednesday.

Britain’s grocery sector has been beset with merger activity in the last few years driven by a highly-competitive market. Stores are grappling with the growth in online shopping as well as challenges from German discounters Aldi and Lidl. Britain’s third-largest grocer, Asda Group Ltd., was taken over by TDR Capital and the Issa brothers in a 6.5 billion-pound deal. Walmart Inc., the U.S. retailer which owned Asda since 1999, retains a minority stake.

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