US private equity giant Clayton, Dubilier & Rice has moved into pole position in the bidding war for Morrisons, having agreed a new £7bn 285p per share bid for the supermarket.
The Morrisons board had previously agreed a deal with a Fortress Investment Group-led consortium for 272p per share (including a 2p per share dividend), but has now recommended shareholders accept the new CD&R offer after it hiked its bid from its previously rejected 230p per share offer.
The new CD&R offer represents a 60% premium to Morrisons’ closing price of 178p on the day prior to its first bid becoming public.
The offer now represents an enterprise value of £9.7bn (including debt) and a multiple of approximately 9.0 times Morrisons’ underlying EBITDA for the 52 weeks ended 31 January 2021 and approximately 9.4 times Morrisons’ underlying (pre-COVID-19) EBITDA for the 52 weeks ended 2 February 2020.
The Morrisons board have said the new offer is “fair and reasonable” and has advised shareholders to accept the offer at a shareholder meeting expected to around the week commencing 4 October.
Commenting on the CD&R Offer, Andrew Higginson, chair of Morrisons, said: “CD&R have a strong record of developing, strengthening and growing the businesses that they invest in and they share our vision for Morrisons’ future.
“This, together with the strong set of intentions that they have set out today, gives the Morrisons Board confidence that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business.”
Sir Terry Leahy, senior adviser to CD&R funds, said: “CD&R is delighted to have the opportunity to support the management of Morrisons in executing their strategy to grow and develop the business.
“The grocery sector in the UK is undergoing great change and we believe Morrisons is well placed, with CD&R’s support, to succeed in this environment. CD&R values Morrisons’ distinctive business model and is committed to supporting it, including the successful ESG and broader stakeholder engagement strategies of the company that are essential to its continued success.”
CD&R said it “believes Morrisons is a high quality business that is well-positioned within UK grocery and led by a strong management team” and that it “recognises the strength of Morrisons’ heritage, the legacy of Sir Ken Morrison and its long-term track record of working with and for customers and stakeholders”.
The private equity bidder, unlike the Fortress consortium, has not made specific pledges on how it will run the business, such as commitments on its headquarters or property portfolio.
Instead CD&R said it is “committed to supporting Morrisons to capitalise on these foundations and to execute successfully the current strategy to deliver both growth and profitability”.
These strengths, it said, include its freehold property portfolio, which affords greater flexibility and operational control, as well as its vertical integration, which enables it to compete successfully on price and guarantee the quality of its products in partnership with local suppliers and farmer
“CD&R is widely recognised for being a trusted partner to the management teams of the businesses in which it invests and for providing ongoing support to help them innovate, develop, and grow their operations.
“CD&R has dedicated significant resources to develop an in-depth understanding of the Morrisons management team’s vision for the business and is committed to supporting the existing team in continuing to execute its strategy, including the ‘Fix, Rebuild, Grow, Sustain’ strategy which has served the business and its stakeholders well.”
Responding to the news, the rival Fortress-led consortium said it was “considering its options” and urged Morrisons shareholders to take no action.
Morrisons shares are up a further 4.3% to 291.2p this morning.
Marks & Spencer has raised its full year profit guidance after seeing stronger than expected trading in the first months of its new financial year.
M&S said that, based on trading in the 19 weeks to 14 August 2021, it has seen an encouraging performance since Covid restrictions eased, providing confirmation that the transformation programme is on track.
Food revenue in the period has outperformed, increasing 10.8% on last year and 9.6% on 2019/20.
Core categories and retail park locations have traded strongly, it said, while hospitality and franchise are progressively improving, although remain below 2019/20 levels due to reduced footfall and the slow return to more normal work patterns.
Despite the variable location performance, overall trading has been ahead of the market. To date, cost reduction programmes are helping to mitigate cost inflation and disruption in the supply chain, and the cost of increased colleague absence in the period.
Clothing & Home has also seen a good recovery in its performance, with sales up 92.2% on last year and down just -2.6% on 2019/20.
M&S said the performance reflected a change in its approach to trading, including more focussed ranges, fewer promotions and a substantially smaller summer sale. All of this has resulted in full price sales up 9% on 2019/20.
The pivot to online has continued with store sales down -19.8% on 2019/20 as many locations remain in slow recovery from the pandemic, although retail parks have outperformed. MS2 has continued its momentum as the business improves its online and data capability. Clothing & Home online sales are up 61.8% on 2019/20 and comprised 35% of total category sales.
International revenue is up 39.7% on last year and down only -5.2% on 2019/20 despite the impact of lockdown in India in the early part of the financial year and substantial Brexit related effects on the supply of food to its businesses in the Republic of Ireland and France.
M&S stated: “Although there has likely been an element of pent-up consumer demand in trading to date, we believe this performance provides strong confirmation of the beneficial effects of the last 18 months “Never the Same Again” changes.
“Despite this, there remains substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin.”
Assuming no further Covid-related restrictions on trading, it forecasts adjusted profit before tax for the year to be above the upper end of previous guidance of £300-350m range.
It will report half year results on 10 November.
Elsewhere, UK retail sales volumes fell by 2.5% between June and July 2021, according to the Office of National Statistics, as food and non-food sales both fell.
Food store sales volumes fell by 1.5% in July 2021, following an increase in the previous month when sales were positively boosted by the start of the Euro 2020 football championship.
Non-food stores reported a fall of 4.4% in sales volumes in July 2021 when compared with June 2021, driven by falls in other stores (negative 10.1%), such as second-hand goods stores and computer and telecoms equipment stores.
However, looking more broadly, sales were up by 5.2% in the three months to July compared with the previous three months and are 5.8% higher than their pre-coronavirus pandemic February 2020 levels.
Food store sales volumes in particular are still 4.9% above their pre-coronavirus (COVID-19) pandemic levels in February 2020.
Automotive fuel sales volumes fell by 2.9% over the month, its first monthly fall since February 2021; with heavy rainfall in early July impacting road traffic volumes, automotive fuel sales volumes are now 6.7% below their pre-coronavirus pandemic February 2020 levels.
The proportion of retail sales online increased to 27.9% in July from 27.1% in June and remains substantially higher than the proportion of online retail spending in February 2020 (pre-coronavirus pandemic) of 19.8%.
On the markets this morning, the FTSE 100 has fallen 0.3% to 7,040.7pts.
Risers include Marks & Spencer, up 10.7% to 158p, Sainsbury’s, up 1.9% to 294.6p and SSP Group, up 1.7% to 266.4p.
Fallers include McBride, down another 3.1% to 76.5p, Hotel Chocolat, down 1.3% to 370p and Diageo, down 1.3% to 3,521p.
Yesterday in the City
The FTSE 100 slumped 1.5% yesterday back to 7,058.9pts as weakness in mining stocks and fears over a slowdown in the global economic recovery hit sentiment.
McBride sank 6.8% to 79p after issuing a profits warning saying earnings will be up to 65% lower than current market expectations due to growing input and transportation costs.
Other fallers included Imperial Brands, down 4.4% to 1,519p, C&C Group, down 4.1% to 249p, Greencore, down 3.2% to 129.9p, Premier Foods, down 3.2% to 109p, FeverTree, down 2.6% to 2,295p, Nichols, down 2.5% to 1,360p, Compass Group, down 2.3% to 1,466.5p and Bakkavor Group, down 2.2% to 117p.
The day’s few risers included Just Eat Takeaway.com, up 2.4% to 6,797p, PayPoint, up 1.8% t 697p, Hotel Chocolat, up 1.4% to 375p, Domino’s Pizza Group, up 1% to 413.2p and Ocado, up 0.9% to 1,897.5p.