Morrison Shares Set to Rise on $8.7 Billion Takeover Offer

(Bloomberg) -- Wm Morrison Supermarkets Plc shares are poised to gain on Monday after the U.K. supermarket operator agreed to a 6.3 billion-pound ($8.7 billion) takeover bid that could prompt counteroffers.

Over the weekend, a consortium led by Fortress Investment Group offered 252 pence per share plus a 2 pence special dividend, a premium of more than 42% to the closing price as of June 18, the final day of trading before another bid to take over the grocer. Morrison’s shares last traded at 239.8 pence, valuing the company at about 5.8 billion pounds.

The agreement follows Morrison’s rejection last month of a 5.5 billion-pound ($7.6 billion) bid from private equity firm Clayton Dubilier & Rice LLC. The offer remains below the 270-per-share range that some top investors asked to entertain CD&R’s offer but shareholders may still see value in the latest bid.

“Shareholders may accept the offer, given the low sales and revenue prospects,” wrote Charles Allen, senior analyst at Bloomberg Intelligence, after news of the Fortress-led bid. Still, he sees room for the bidding group to improve its offer.

This and potential counteroffers mean the share price could surpass the level of the latest bid. Officials with CD&R declined to comment Saturday on their plans after the Fortress bid.

The possible bidding war for Morrison underscores the interest in U.K. supermarkets after the 6.5 billion-pound buyout of Asda, the country’s third-largest operator, as private equity firms look to capitalize on a business boosted during the pandemic thanks to increased grocery spending.

It’s a different story for holders of Morrison’s bonds, which slumped after the initial bid by CD&R last month. The only protection for bondholders in case control of the supermarket changes and credit ratings fall to junk is an option to sell at face value.

“This signals the biggest shakeup in the UK grocery sector for over a decade,” wrote Richard Lim, chief executive of Retail Economics, a U.K.-based consultancy. “Navigating the fast-paced change in market dynamics, customer behavior and the pressures on the food supply chain in a post-Brexit environment will be no easy feat.”

A takeover of Morrison would be the largest buyout of a U.K.-listed company in at least a decade, according to Bloomberg data. The Fortress bid could still face opposition from politicians concerned about a foreign takeover of the U.K. grocer. Morrison’s main union, Unite, has also demanded “unbreakable guarantees” on jobs and working conditions in any takeover of the company.

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