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Omnichannel success makes Morrisons an increasingly attractive acquisition target

Morrisons expanded its online delivery services during the Covid-19 pandemic. Image courtesy of Morrisons

Morrisons’ omnichannel business model continues to prove a key attraction in a bidding war that has now taken the price of the UK supermarket above £7bn. The retailer, ranked Leading in RXUK Top500 research, has seen its online sales triple over a year of pandemic as it found new digital ways to deliver groceries during Covid-19 lockdowns. 

Morrisons last month accepted an offer valuing the business at more than £6.3bn from Fortress Investment Group, and that was subsequently increased to £6.7bn. But the latest 285p per share offer from Clayton, Dubilier & Rice (CD&R), which itself previously bid 230p, values the supermarket’s shares at £7bn, and, says CD&R, implies a wider value for the business of £9.7bn. The supermarket’s board is now recommending this offer to shareholders. Fortress Investment today said it was considering its options and would make a further announcement in due course.

Outlining the rationale behind its bid, CD&R said that it would support Morrisons in building on its strengths in-store in its supermarkets, while also seeing it well-positioned to benefit from the growth in online grocery. It says: “Morrisons has successfully built one of the leading online grocery businesses in the UK, leveraging its well-integrated business model and strong partnerships with technology businesses such as Ocado and Amazon. CD&R believes Morrisons is well positioned to leverage the growth in online grocery using its differentiated platform.” 

The group also says that it sees Morrisons’ portfolio of freehold properties as an operational strength that gives it opportunities within the UK market, while its wholesale business – the basis on which it supplies partners including Amazon – is “differentiated and scalable”. The supermarket’s legacy and culture are also seen as “core to Morrisons and its approach to grocery retailing”.

Sir Terry Leahy, former Tesco chief executive and now senior adviser to CD&R funds, says: “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.”

Andrew Higginson, chair of Morrisons, says: ”The Morrisons board believes that the offer from CD&R represents good value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders. 

“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.”

Commenting, Andy Halliwell, senior director, retail and retail analyst at consultancy Publicis Sapient, says: “The offer by CD&R is probably more appealing to Morrisons than the offer from Fortress due to the strong links between the leadership teams – Sir Terry Leahy is an advisor to CD&R, but previously he worked at Tesco where many of the leadership team from Morrisons would have worked for him. It’s also a strong offer that recognises not just the value of the business, but puts a value on how Morrisons owns more of its manufacturing and supply chain than many other supermarkets. 

“The only worrying trend is that there is a lot of M&A activity at the moment (Asda, Morrisons, Sweaty Betty, Feelunique, Dreams, Leon, Notonthehighstreet), and the risk is that the British high street is going to be dictated by businesses and owners with no real interest in British culture, jobs or communities. Many of these companies will be looking to sell off assets, unlock value for shareholders, and then sell on the business in a few years for a big profit. This didn’t work out well for Debenhams, and I have no faith that other investment firms will work any differently.”

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