Morrisons agrees £ 6.3bn takeover: deal backed by board

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Supermarket giant Morrisons has agreed to a successful £ 6.3 billion sale of the company to a consortium of investors backed by the US billionaire Koch family and Japanese tycoon Masayoshi Son.

The surprise deal, which must be ratified by shareholders and could still be canceled by a competing bidder, was announced early yesterday morning.

This means that the London Stock Exchange-listed grocer will almost certainly fall into private hands for the first time in 54 years.

Buyers include private equity giant Fortress Investment Group, which owns Majestic Wine and is backed by billionaire Masayoshi Son’s Softbank; CPPIB Credit Investments, a subsidiary of the Canada Pension Plan Investment Board; and Koch Real Estate Investments.

Deal means Morrisons will likely fall into private hands for the first time in 54 years

The investor group has previously sought to block public and political opposition to a takeover of one of Britain’s most high-profile business names with a host of promises, including a long-term ownership pledge and maintaining the head office in Bradford.

Buyers are committed to being “good stewards” of the business and to recognizing the “legacy” of founder and former chairman Sir Ken Morrison, who transformed the family market stalls into a national grocery chain with annual sales of £ 17.6 billion.

The insurances would become legally binding under takeover panel rules if the deal were sanctioned by shareholders – including the Morrisons family, which has a 5% stake.

The shock announcement follows a £ 5.5bn buyout offer from rival private equity firm Clayton, Dubilier & Rice, which is advised by former Tesco chief executive Sir Terry Leahy.

It is not too late for CD&R, whose approach has been flatly rejected by Morrisons, or any other company to enter the fray with a higher bid.

Morrisons’ board of directors recommended the new consortium’s legally binding offer, which is 42% above the share price before CD & R’s interest appeared two weeks ago.

The consortium will pay £ 2.52 per share, valuing the company’s equity at £ 6.3bn.

It will also have to repay or refinance £ 3.2bn of Morrisons debt, bringing the total value of the deal to £ 9.5bn. An additional dividend of 2 pence per share would also be paid to shareholders.

A source told The Mail on Sunday that the consortium had been working on the deal since the start of the year and that an official offer was delivered to the board in secret in early May.

The deal was made on Wednesday and took two days. It is not yet clear whether Morrisons shareholders, some of whom have asked for up to £ 2.70 per share, will approve the deal or ask for a higher price.

The acquisition must be supported by the holders of 75 percent of the shares. It should also be approved by the authorities and probably considered by the ministers.

Morrisons chairman Andy Higginson, who led the company’s turnaround with chief executive David Potts, said the award was “highly commendable.”

But he added: “In a takeover, price is obviously very important and remains the predominant element. But we all know about the Cadbury takeover by Kraft Heinz. [when the US corporation later closed the Somerdale Factory near Bristol and moved production to Poland].

“Since then, and rightly so, these companies have gained weight and are very important to us. In Yorkshire it is a very family business and the commitments we have asked for [the consortium] because we really have to try to ensure that these principles are maintained.

The announcement follows a failed £ 5.5bn takeover proposal for Clayton, Dubilier & Rice

The announcement follows a failed £ 5.5bn takeover proposal for Clayton, Dubilier & Rice

He admitted that an “industry malaise” that drove shares down in major supermarkets, including Tesco and Sainsbury’s, was “frustrating” despite the improvement in Morrisons’ fortunes.

But he said buyers “basically see more value in the business than the market has seen in its share price over the years.” There is just a fundamentally different view of it ”.

The potential Morrisons buyout has already sparked interest from the influential Parliamentary Business Select Committee, which wrote to the Competition and Markets Authority to clarify how much power it has to intervene in debt-fueled buyouts.

The letter follows a series of failures attributable to private equity interests, including Debenhams and Comet.

Asda was recently acquired by two newcomers to the supermarket sector in a transaction backed by private equity firm TDR. Asda’s new owners last week sold and re-let parts of its distribution and logistics assets for £ 1.7bn to help pay for the deal.

Darren Jones, chairman of the Business Select Committee, said in his letter to the CMA: “UK supermarkets are the last area of ​​interest for private equity and other buyers using large amounts of debt.

“Some stakeholders have expressed concerns about what this might mean for job protection, pension funds and the presence of supermarkets on UK main streets.”

The involvement of the Koch family may also raise eyebrows given Charles Koch’s involvement in a range of conservative and right-wing causes, such as opposition to climate change legislation.

But in a series of commitments, the investor consortium pledged to keep the grocer as a long-term “stand-alone business” with its head office in Bradford.

In what appeared to be a pledge not to sell and lease Morrisons’ giant £ 7.4bn portfolio of goods, food factories, shopping malls and other physical assets, the consortium said it “does not plan to engage in any hardware store sale and leaseback transactions.”

Investors plan to inject £ 3 billion into the deal, roughly four times the equity provided for the Asda deal, which was largely debt-financed.

They also said the consortium “does not anticipate any significant changes in existing payment practices” with suppliers and farmers, and supports the “important role of the grocer in ensuring the continued security of the food supply in the Kingdom. -United”.

He maintained he would pledge to strike a recent £ 10 an hour pay deal at shops and manufacturing sites and ‘fully’ protect pensions.

The consortium also supported Morrisons’ ‘social and environmental commitments’, which include zero deforestation in its supply chain by 2025 and to become the first supermarket to be supplied by net zero carbon UK farms by 2030.

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