Morrisons agrees to £6.3bn takeover: Deal backed by the board

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

The surprise deal, which must be ratified by shareholders and could still be trumped by a rival bidder, was announced early yesterday morning. It will mean the London Stock Exchange-listed grocer will now almost certainly fall into private hands for the first time in 54 years. 

The 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. 

End of an era: The deal will mean Morrisons will now almost certainly fall into private hands for the first time in 54 years

The group of investors has already sought to head off public and political opposition to a takeover of one of Britain’s most high-profile business names with a slew of pledges, including a commitment to long-term ownership and keeping the head office in Bradford. The buyers pledged to be ‘good stewards’ of the business and to recognise ‘the legacy’ of founder and former president Sir Ken Morrison, who built up the family market stalls into a national grocery chain with £17.6billion annual sales. The assurances would become legally binding under Takeover Panel rules if the deal was sanctioned by shareholders – including the Morrisons family, which owns a 5 per cent stake. 

The shock announcement follows a failed £5.5billion takeover proposal 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 was flatly rejected by Morrisons, or any other firm to enter the fray with a higher offer. The Morrisons board has recommended the legally-binding bid from the new consortium, which is 42 per cent above where the share price stood before CD&R’s interest emerged two weeks ago. 

The consortium will pay £2.52 a share, valuing the equity of the business at £6.3billion. It will also need to repay or refinance £3.2billion of Morrisons’ debt, taking the total value of the deal to £9.5billion. An additional 2 pence a share dividend would also be paid to shareholders. 

One source told The Mail on Sunday the consortium had been working on the deal since the beginning of the year and a formal bid was handed to the board in secret in early May. The deal was agreed on Wednesday and took two days to complete. It is not yet clear whether Morrisons shareholders, some of whom demanded as much as £2.70 a share, will approve the deal or ask for a higher price. The acquisition must be supported by holders of 75 per cent of the shares. It would also need to be rubber stamped by authorities and it likely to be scrutinised by Ministers. 

Morrisons chairman Andy Higginson, who has led a turnaround of the business with chief executive David Potts, said the price was a ‘very recommendable’. 

But he added: ‘In a takeover, price is obviously very important and is still very much the predominant thing. But we all know about the Kraft Heinz takeover of Cadbury [when the US corporation later closed the Somerdale Factory near Bristol and moved production to Poland]. Since then, rightly, these undertakings have more weight and are very important to us. In Yorkshire, this is very much seen as a family firm and the undertakings we have asked [the consortium] for are very much to try to ensure those principles are maintained.’ 

He admitted a ‘sector malaise’ that has depressed shares across major supermarkets including Tesco and Sainsbury’s has been ‘frustrating’ despite Morrisons improved fortunes. But he said the buyers ‘fundamentally see more value in the business than the market has in its share price over the years. There’s just a fundamentally different view of it’. 

The potential takeover of Morrisons has already attracted the interest of the influential Parliamentary Business Select Committee, which has written to the Competition and Markets Authority to clarify what power it has to intervene in debt-fuelled takeovers. The letter follows a string of high street failures blamed on private equity ownership, including Debenhams and Comet. 

Asda was recently acquired by two newcomers to the supermarket sector in a deal backed by private equity firm TDR. Asda’s new owners last week sold and leased back a swathe of its distribution and logistics assets for £1.7billion to help pay for the deal. 

Darren Jones, chairman of the Business Select Committee, said in his letter to the CMA: ‘British supermarkets are the latest area of interest for private equity and other buyers using significant amounts of debt. Some stakeholders have raised concerns about what this might mean for the protection of jobs, pension funds and supermarkets’ presence on British high 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 opposing climate change legislation. But in a raft of commitments, the consortium of investors pledged to maintain the grocer as a ‘standalone business’ for the long-term with its head office in Bradford. 

In what appeared to be a commitment not to sell and leaseback Morrisons’ giant £7.4billion portfolio of property, food manufacturing plants, shopping centres and other physical assets, the consortium said it ‘does not anticipate engaging in any material store sale and leaseback transactions’. 

The investors plan to inject £3billion cash into the deal – about four times the equity provided for the Asda deal, which was largely funded by debt. 

They also said the consortium ‘does not anticipate any material changes to existing payment practices’ with suppliers and farmers as well as supporting the grocer’s ‘important role in ensuring the ongoing security of food supply in the UK’. 

It maintained it would commit to a recent £10-an-hour pay deal across stores and manufacturing sites and to ‘fully’ safeguard 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 British farms by 2030.