Apollo mulls bid for Morrison, heating up takeover battle

Bloomberg

Apollo Global Management Inc said on Monday it’s considering an offer for Wm Morrison Supermarkets Plc, heating up a takeover battle for the UK grocer.
Morrison just agreed over the weekend to a 6.3 billion-pound ($8.7 billion) takeover from a consortium led by Fortress Investment Group. That offer trumped private equity firm Clayton Dubilier & Rice LLC’s earlier 5.5 billion-pound bid, which the supermarket operator rejected.
Morrison shares surged as much as 12% to a record in London, trading above the level of the Fortress offer.
The possible bidding war underscores the interest in UK supermarkets after this year’s 6.5 billion-pound buyout of Asda, the country’s third-largest operator. Private equity firms are trying to capitalise on a business model boosted during the pandemic thanks to increased grocery spending.
“This signals the biggest shakeup in the UK grocery sector for over a decade,” wrote Richard Lim, chief executive of Retail Economics, a UK-based consultancy.
Morrison owns about 85% of its almost 500 stores as well as manufacturing sites, making it attractive to private equity bidders. The property was last valued at about 6 billion pounds, above the company’s market capitalisation before news of the CD&R approach was made public. Apollo made its statement after press reports of a possible bid. The firm said it has made no approach and it’s in preliminary stages of considering one.
Fortress and Morrison have agreed to cooperate though the grocer still reserves the right to withdraw its recommendation and opt for a competing offer. There’s no break-up fee if that would occur.
Morrison agreed to Fortress’s offer of 252 pence per share plus a 2 pence special dividend. The Fortress bid remains below the 270-per-share range that some top investors asked to entertain any further offer from CD&R, which initially proposed 230 pence per share. Silchester, Morrison’s largest shareholder, declined to comment.
Morrison’s bonds fell 5 pence on Monday, extending a slump that began last month after suitors first emerged. Analysts at CreditSights Ltd, a credit research firm, cut their recommendation on the grocer’s debt to sell from underperform, given the higher leverage after a takeover.
Morrison, the UK’s fourth-largest supermarket chain, has some 110,000 employees. A takeover would be the largest buyout of a UK-listed company in at least a decade, according to data compiled by Bloomberg.
Bids could face opposition from politicians. The Labour Party demanded close scrutiny of the potential foreign PE acquisition of a 122-year-old chain highly concentrated around Northern England and headquartered in West Yorkshire. Morrison’s main union, Unite, has also demanded guarantees on jobs and working conditions in any takeover of the company.
Apollo came close to buying Asda, Britain’s third largest grocer, but was edged out by a consortium led by the Issa brothers and TDR Capital. Apollo worked on its Asda bid with the retail veteran Rob Templeman, the former boss of Debenhams department stores.