CD&R Gets Morrison Board Backing for Sweetened $9.5 Billion Bid

Deirdre Hipwell
·3 min read

(Bloomberg) -- Clayton Dubilier & Rice LLC raised its offer for Wm Morrison Supermarkets Plc to 7 billion pounds ($9.5 billion) in a bid to outmaneuver Fortress Group in the battle for Britain’s fourth-largest grocer.

The U.S. private equity group offered to pay 285 pence a share for the Bradford, United Kingdom-based grocer, according to a statement on Thursday evening, on the eve of a “put up or shut up” deadline. This follows the 272 pence-a-share offer from the Fortress-led consortium and CD&R’s prior offer of 230 pence, which was rejected by Morrison in June.

After weeks of speculation as to whether it would up its offer, CD&R also pledged to support Morrison’s existing management team, its relationships with suppliers and its terms on employee pay and pensions. The private equity firm further promised not to carry out material sales and leasebacks of the grocer’s extensive real estate portfolio. This largely matches similar commitments made by the rival Fortress consortium.

Directors at Morrison have unanimously withdrawn their recommendation for the Fortress bid and are now backing the offer from CD&R.

“CD&R is widely recognized 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,” the company said.

Representatives from Fortress didn’t immediately reply to a request for comment outside of regular business hours.

Buyout firms are vying for the British grocer in part because of its valuable real estate portfolio -- it owns about 90% of its almost 500 stores as well as some manufacturing facilities. The business, led by Chief Executive Officer David Potts, also generates large amounts of cash, has low underlying debt and a large pension surplus. Morrison and rival supermarkets have benefited from improved online and store sales after lockdowns triggered a surge in grocery spending and changed shopping habits.

Tesco Connections

Among those leading CD&R’s bid is former Tesco Plc CEO Terry Leahy, who worked with Potts at Britain’s largest supermarket operator. Potts left Tesco, where he spent most of his working life, after he failed to get the top job when Leahy resigned. Many of Morrison’s top management team are also ex-employees of Tesco and worked under Leahy when he was aggressively expanding into the U.S. and Asia.

The improved offer from CD&R could be welcome news for Morrison’s shareholders, some of whom, including the largest investor Silchester International have been vocal about wanting a fair value price for the grocer.

There’s also the prospect of an even more intense bidding war if the Fortress bidding group comes back with an ever higher offer for Morrison. That group includes the billionaire Koch family, the Canada Pension Plan Investment Board and Singapore sovereign wealth fund GIC.

(Updates with additional details throughout)

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