New Morrisons Owner Has Plenty of Redemption Room | Nils Pratley
The auction for Morrisons was not worth the wait, but the mission to showcase Clayton Dubilier & Rice as the caring and far-sighted owner of the UK’s fourth largest supermarket chain continues to be in full swing. Andrew Higginson, president of Morrisons, has done his part by saying that private equity sometimes has “a bad reputation” and generally derives its income from growing companies rather than “financial engineering”.
Top marks for the effort, but let’s not pretend that this deal, as initially structured, is markedly different from most debt-fueled buyouts. First, the behavioral commitments offered by the buyer – covering sale-leaseback agreements, staff compensation, and vendor treatment – do not deserve the hype they have received. They are vague and only last 12 months.
On possible transfers of ownership, for example, the new owner said he “had no intention of engaging in major store sale and leaseback transactions.” What is the definition of “material” in this context? No one ever explained.
As for avoiding financial engineering, it is difficult to know if this is seriously wanted. The takeover is worth around £ 10bn – £ 7bn in equity plus £ 3bn in debt already borrowed by Morrisons – and CD&R has talked about investing equity capital of around 3.4 billion pounds sterling. The debt could therefore rise to £ 6.6bn, which is a considerable sum to load for a company which made operating profits of £ 513m in its last pre-pandemic year. . This degree of leverage is normally a mark of the art of the financial engineer.
There will of course be a plan to reduce borrowing, but the money probably cannot be fully generated by running the business better (Morrisons was not badly run) or by opening convenience stores in all 900 stations- service belonging to the Motor Fuels group of CD&R. . Divestitures, most analysts believe, must be part of the scenario.
Yes, of course, there will be growth projects in addition. And, yes, CD & R’s reputation as a business builder exceeds that of most of its private equity peers. But, come on, this is still a leveraged buyout that relies on the gymnastics of debt, a fact that shouldn’t be lost amid the noise.
Sky Prepares Next Step in UK Fiber Expansion
Sky, now under the wing of US cable and media giant Comcast, about to upset BT’s plans to dominate fiber broadband in the UK?
Well, that won’t derail the rollout as BT has pledged to reach 25 million homes by 2026. But Sky has nuisance value due to its 6 million broadband customers. If it partnered with Virgin Media O2, BT’s only major excavation rival, the competitive dynamics would change. BT would remain the fiber leader in any likely projection of market share, but the challenger, in theory, would have greater financial confidence to install more fiber more quickly.
The Sunday Telegraph report that Sky could invest in Virgin Media’s O2 fiber network caused the BT stock price to fall 7% at one point on Monday, a big step for a stock that had already been low these days. last few weeks. The damage was contained to 4.7% at the end of the day, but the nervousness in the ranks of BT shareholders is understandable.
As of right, Sky would take a huge business gamble by committing solely to the Virgin O2 network, either as an investor or simply as a wholesale buyer of fiber capacity. It’s hard to believe that this would tie in so closely: an agreement with the two big fiber players always seems more likely. But the terms of any alliance with Virgin O2 would still be annoying for BT.
The smart solution, of course, is to get the fiber into the soil faster. It’s easier said than done.
The Next Boss Knows How To End The Supply Chain Crisis
The government speech last week said tensions in the supply chain had nothing to do with Brexit. The explanation for this week is that empty shelves and queues on forecourt are a necessary post-Brexit transition to a high-wage, high-productivity economy. The speed of the narrative rewrite is extraordinary.
By far the most sensible conservative voice on these issues is Simon Wolfson, chief executive of Next, who suggested in an Evening Standard column that the agony of immigration could be resolved by allowing companies to apply for as many visas as work that they need, but with two critical conditions. First, foreign workers could not be paid less than their British colleagues. Second, the employer should pay a 7% salary supplement to the Consolidated Revenue Fund.
It is an idea – in fact, a practical idea that could form the basis of a compromise to satisfy all parties. It is therefore assumed that he will not have a hearing this week in Manchester.