L&G Pushes Morrison on Real Estate Value as Bidders Circle

Legal & General Investment Management, one of Wm Morrison Supermarkets Plc’s top 10 shareholders, asked the grocer to publish more information on the value of its real estate so investors can decide whether private equity firms are angling to buy the company on the cheap.

Morrison agreed over the weekend to a 6.3 billion-pound ($8.7 billion) takeover from a consortium led by Fortress Investment Group. That offer trumped private equity firm Clayton Dubilier & Rice LLC’s earlier 5.5 billion-pound bid, which the supermarket operator rejected. Apollo Global Management Inc. said Monday it’s considering an offer too.

“As the Morrisons situation evolves, it is leading to more questions than answers,” wrote Andrew Koch, a fund manager at L&G. “Given this is an agreed bid, it is likely that Fortress and their partners have had more information than others on this. Investors need to have the detailed figures to be able to make a considered decision regarding the right future for the company and their shareholdings.”

Morrison shares surged as much as 12% to a record in London, trading above the level of the Fortress offer.

Morrison owns about 85% of its almost 500 stores, as well as manufacturing sites, making it attractive to private equity bidders. 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 Fortress bid remains below the price of 270 pence per share that some top investors said would warrant consideration if there were another offer from CD&R, which initially proposed 230 pence a share.

“I am satisfied that there is a firm offer on the table, however the price does not feel particularly full, and it’s very possible that not all parties involved have given their best price yet,” shareholder Massimo Stabilini, a former Paulson & Co. executive who runs the hedge fund Sinclair Capital, said on Saturday. He had previously said he expected as much as 270 pence a share.

Morrison’s property valuation could be conservative. Grocers, including U.K. market leader Tesco Plc, have recently been writing back some impairments after recording improvements in sales and cash flows per square foot in stores during the pandemic.

“If an acquirer makes strong returns this should come from making the company a better business,” Koch wrote. “It should not come from buying its property portfolio too cheaply, levering the company up with debt, and potentially reducing the tax paid to the Exchequer.”

Stephen Bird, chief executive officer of abrdn -- formerly Standard Life Aberdeen -- called the Fortress offer for Morrison “good value” and a “smart thing to do” in an interview with Reuters on Monday. Abrdn is among the top 20 investors in Morrison, although its holding is passive.

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