Clayton Dubilier & Rice LLC outbid Fortress Investment Group in a rare auction to determine the winner of a private equity bidding war for Wm Morrison Supermarkets Plc, Britain’s fourth-largest grocer.
In a hard-fought contest, CD&R made a 287 pence-a share final offer, valuing the supermarket chain at about £7bn ($9.5bn), the UK’s Takeover Panel said in a statement on Saturday. This topped Fortress’s 286 pence-a-share offer.
CD&R’s victory clears the path for what will be Britain’s biggest take-private deal in more than a decade, according to data compiled by Bloomberg. Morrison attracted intense buyout activity this summer, with bidders drawn to a well-run and highly cash-generative business with a valuable real estate portfolio of nearly 500 stores across Britain.
Directors of Morrison’s board still have to make a recommendation to investors and are expected to back the winner of the auction. Shareholders will have the final say when they vote on the deal on October 19. A representative for Morrison declined to comment.
The fight to control Morrison has been under way since June, when news emerged of a CD&R approach that had been rejected by the supermarket operator. Since then, the grocer’s board has fielded a number of offers from both firms and has at various stages recommended each of the parties to shareholders.
Merger activity: “Morrisons is an outstanding business and we wish the company and all those involved with it the very best for the future,” said Joshua Pack, managing partner at Fortress, said in a statement: “The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities.”
Britain’s highly-competitive supermarket sector has been beset with merger activity in recent years. In 2020, TDR Capital and the Issa brothers agreed to buy the country’s third-largest grocer, Asda Group Ltd, in a £6.8bn deal.
Elsewhere in Europe, France’s Carrefour SA was this year targeted by Canada’s Alimentation Couche-Tard Inc, only for the French government to scupper a takeover.
CD&R’s deal for Morrison will be funded with more than £3.4bn of equity from funds managed by the private equity firm. Debt of about £6.6bn will be provided by bridge loans and revolving credit facilities by Goldman Sachs Group Inc, Bank of America Corp, Mizuho Financial Group Inc. and BNP Paribas SA.
In a scheme document published last month, CD&R said it’ll help Morrison grow by expanding its wholesale business and driving online sales.
The private equity firm pointed to its experience with British discounter B&M, which it said more than doubled revenue and earnings before interest, taxes, depreciation and amortisation under its ownership.
It’s pledged to maintain Morrison’s policy on pay and pensions and support its long-term relationships with British farmers, and has also agreed to provide “additional security” to support the grocer’s pension schemes.
The CD&R bid is being led by Terry Leahy, a former chief executive officer of Tesco Plc, Britain’s largest grocer.
He has a long history with most of the Morrison management team, including CEO David Potts and chairman Andy Higginson, who spent much of their careers at Tesco.