Bidding war for British supermarket chain Morrisons heats up

Shares in British supermarket chain Morrisons spiked higher Friday after New York-based private equity firm Clayton, Dubilier & Rice trumped a previous offer for the company with a $9.5 billion bid

Shares in British supermarket chain Morrisons spiked higher Friday after New York-based private equity firm Clayton, Dubilier & Rice trumped a previous offer for the company with a 7 billion-pound ($9.5 billion) bid.

Morrisons' board has accepted the offer and said shareholders should vote in favor of the takeover at a meeting due in early October.

That means the company has withdrawn its recommendation for investors to accept a previous 6.7 billion-pound takeover deal from a consortium led by rival private equity firm Fortress, which said it was considering its options.

The news of the new offer and the possibility of a continuation in the bidding war buoyed Morrisons' share price. In morning trading in London, it was up 4.3% at 291.20 pence.

Morrisons is Britain's fourth-largest retailer, employing about 110,000 people in nearly 500 stores and over 300 gas stations.

The new offer comes a week after CD&R was given an extended deadline until Friday afternoon by British regulators to table a bid or walk away. CD&R had originally been turned down by the Morrisons board, which said a potential 5.5 billion-pound bid significantly undervalued Morrisons and its future prospects."

In the updated offer document, released late Thursday, it recognized the strong heritage at the heart of Morrisons and said it will further build on its long-standing strengths. It indicated that it was not planning big changes in the management of the Morrisons property portfolio.

CD&R is one of the most firmly established investors in the sector and has been advised by Terry Leahy, the former boss of Tesco, Britain's biggest supermarket chain, over the past 10 years.

Private equity firms typically acquire undervalued companies and then look for ways to cut costs and boost profits before selling them at a profit. British assets are widely considered to be cheaper than they otherwise would have been as a result of Britain's departure from the European Union and the coronavirus pandemic.

Morrisons appears an attractive opportunity for private equity as its value had been below its pre-pandemic levels despite strong recent revenues.

Morrisons was founded in 1899 as an egg and butter stall in a market in the north England city of Bradford. It steadily expanded and became a publicly listed business in 1967. It expanded further in 2004 with the acquisition of rival Safeway, a move that grew its presence in the south of England.

The firm is now largely owned by a raft of institutional shareholders, including Silchester International, Columbia, Blackrock and Schroders.