Morrison (wm) Supermarkets Share Discussion Threads

[loganair] 03/7/2021 17:12

Protection vs plundering - why Morrisons is backing the Fortress bid:

It’s not about the price. The 254p Fortress cash offer for Morrisons, announced today and recommended by the Morrisons board, is only 8% more than the 235p bid tabled by US private equity giants Clayton Dubillier & Rice last month. And of course, CD&R may yet up its offer, as indeed may others, to take the hostilities further.

But the significance of the Morrisons board’s acceptance of a takeover by Fortress is in “the fulsome set of commitments in its intention statement”, as chief commercial officer Trevor Strain put it in a call to me this morning, “not just to investors but to all its stakeholders including colleagues, suppliers, farmers and pension holders”.

So who are Fortress? What does their offer entail? What commitments has Fortress made to its stewardship of Morrisons? And how can we be sure they won’t renege on them?
Serious owners

In contrast with CD&R, Fortress is a global asset management fund, with over £53bn in global assets managed on behalf of 1,800 institutional clients and private investors. And the investment of “in excess of £3bn” in equity capital in the all-cash offer “underpins them as serious owners”, says Potts.

The implicit contrast Potts draws with CD&R’s bid is stark. With lower debt levels to service, Fortress “does not anticipate engaging in any sale and leaseback”, it promises. It’s also “fully supportive” of the recent increase in the hourly rate of pay to £10 an hour for store colleagues – “the highest in the market,” adds Potts, proudly, in recognition of their valiant contribution in the pandemic, while there’s also no plans to change the pension rights and benefits.

In other words Fortress, rather than saddling Morrisons with debt, and engaging in the speedy financial flips that private equity is famed for, is positioning itself as a ’patient capital’ player, focused on protecting and nurturing rather than plundering and asset stripping.

As Fortress managing partner Joshua A Pack said: “We believe in making long-term investments focused on providing strong management teams with the necessary flexibility and support to execute their strategy in a sustainable and value enhancing manner.”

As evidence Fortress can point to its 19-year track record in supporting grocery retail businesses including the likes of Albertsons, Fresh & Easy and A&P in the US, as well as US-based petrol forecourt and convenience operator United Pacific in 2013, which has since increased from 129 stores to 650.

Its approach to UK-based Majestic Wine, acquired in late 2019, is also instructive, it argues: it’s not sold any of its freehold and long leasehold properties, and it reversed planned job cuts and store closures in the UK (albeit conditions are more favourable since the pandemic due to Majestic’s status as an ‘essentialR17; retailer).

In contrast with private equity players, there’s also no intention to bring in a separate operating team. “They aren’t there to operate the business,” says Potts. “They are backing the existing management, the strategy, the people”.

Indeed Fortress was glowing in its praise for Potts & co: “Whether it is grocery delivery, hiring new staff to help pick and pack customer orders or integrated vertical sourcing of products, Morrisons management has taken steps to be at the forefront of these trends rather than trailing them.”

True, there are questions over the long-term commitment of Potts, 64 and chairman Andy Higginson, 63. But the offer provides explicit support for the management team’s strategy in every way: in terms of its customers (“a central part in the fundamental character of the Morrisons business”); its suppliers (anticipating “no material changes to existing payment practices”); its vertically integrated supply chain; its programme of targeted new store openings (combined with online sales growth); its focus on wholesale channel development; its support for carbon reduction plans and other sustainability measures.

There’s also no plans to move the Bradford HQ.
Good stewards

Nor is this a case of Morrisons desperately seeking out a more friendly backer following the CD&R approach in mid June. On the contrary, talks with Fortress have been ongoing since 4 May, when an initial 220p per share bid was made. And Fortress has dedicated “significant resources to developing a through understanding of Morrisons’s positioning and long-term potential”.

That was backed up by Pack’s promise of playing a benevolent role, to be “good stewards of Morrisons, to best serve its stakeholder groups, and the wider British public, for the long term.”

As to the possibility of Fortress backtracking on its commitments, says Potts, “we’ve been talking to them for several weeks and have no reasons not to trust them”.

Indeed changes to the UK Takeover Code that were made in the wake of Kraft’s acquisition of Cadbury in 2011, adds Strain, mean that “the intentions document of an acquirer has a legally binding effect. If you look at those intentions there’s a very specific commitment to colleagues, pension holders, it’s a fulsome set of intentions that are binding. That regulatory framework is clear and understood.”

So what happens next? In the next 28 days a scheme document will outline further details of the offer, which would then need to be approved by shareholders “over the summer”, Potts advises.

Meanwhile, it’s not inconceivable that both CD&R and other private equity players may up the stakes and table higher bids. But Potts stresses that it’s not just a case of the highest price taking the spoils.

“The underpin on the pension, anticipating no material change in leaseback obligations, the fact our terms and conditions aren’t changing, bearing in mind the £10/hour commitment, these are all important considerations. Boards have a responsibility to both the price achieved in any acquisition and the implications for a wider set of stakeholders than just investors. We have given extensive consideration to this bid prior to recommending it.

“Any rival bid would have to address those competitive positions. All of us in the board have a very important responsibility to assess future owners of Morrisons. That combination of the premium and the intention and scale of the equity versus debt will have to be compared with other investment alternatives by us and by the companies themselves as they go through their own process.”

That backing puts Fortress firmly in the driving seat. And means that any rival bid from CD&R or other private equity rivals will need to up the stakes on every level.

Over to you Sir Terry.

[nerdlinger] 03/7/2021 16:36

As I understand it the timetable now is;

maximum 28 days from "2.7 Announcement" (RNS on Monday?) to the publication of the Scheme of Arrangement documentation

then minimum 21 days to shareholder meeting for 75% approval

then there's a court hearing leading to a Court Order finalising takeover, up to this point a counter offer can be made. Burges Salmon suggest a timeline of 18 days between shareholder meeting and Court Order but this appears to be unspecified in the rules.

See page 12:



It could go on for a while if there are late counter bids or if the shareholders vote against or combinations and multiples of both. £2.54 is hardly a knockout bid so I'm not researching my investment of the proceeds just yet.

[powereddrones] 03/7/2021 16:34

Walmart took over Asda in 1999 for £6.7bn.

Two observations - the MRW offer does look low ball considering the inflation since 1999 to 2021!

1999 was the closing stages to a roaring bull market, I wonder if the coming months and years will show a similar pattern.

[grafter] 03/7/2021 14:46

Hey sanks brexiteers - selling Englandshire in pounds, y'all

[johnwise] 03/7/2021 13:19

That's good, these guys are successful. Morrisons has been asleep for the past ten years.

Morrisons falls into American hands:

[dipa11] 03/7/2021 13:17

Don't sell your jewel @ cheaper rate to America Where new business are listing @ billion dollar and ours established company they want cheaper prices?They can't make fool too British company.Shorting reduced the price and then give 30% premium for takeover

[ashleyjv] 03/7/2021 13:16

The last of the shorters are about to get burned lol

Everyone else should get at the very least 15% profit

[justiceforthemany] 03/7/2021 12:59

It is concerning why offers are not being made public.
SAGA was the same.
Is this not important, price sensitive information?
Why are the FCA not doing their job?

[loganair] 03/7/2021 12:41

Morrisons said an initial unsolicited proposal was received from Fortress on May 4 at 220 pence a share. This offer was not made public. Fortress then made four subsequent proposals before its offer reached a total value of 254 a share on June 5.

[loganair] 03/7/2021 12:38

In Europe, the investment management firm has holdings in food retail and the UK-based wine retailer majestic Wine.

In the United States, as well as groceries, Fortress has invested in petrol station forecourts, retail and restaurants.

Richard Lim, CEO of consultancy Retail Economics, said the announcement "signals the biggest shakeup in the UK grocery sector for over a decade".

"Success will hinge on the new owners gaining the support of experienced key members of the leadership team to execute on the future strategy," he added, emphasising the impact of the shift towards online grocery shopping and the growth of rapid delivery on the market.

[hades1] 03/7/2021 12:37

The Times is also now speculating via City sources that this will indeed flush out other bidders!

[hades1] 03/7/2021 12:25

From Daily Telegraph concerning this morning's announcement............ Add it all up, and the Fortress offer, backed of Koch Industries and Canadian pension fund CPPIB, is still two low. So what should happen now? A higher offer may well emerge. CD&R is one of the biggest private equity houses in the world with very deep pockets. It may well decide to up the price it is willing to pay. Alternatively, now that Morrisons is clearly in play, and the board has agreed it is happy to sell, a trade buyer may be flushed out. Amazon has been eyeing a supermarket chain for ages, already has a tie up with Morrisons and could easily bid. Even £7bn would be small change to the beast from Seattle. Or another trade buyer may emerge from Europe, Asia or America.In reality, if some of the smartest money on the planet is suddenly very, very keen on the British grocery market something has changed. After two decades in the doldrums, it has suddenly sprung back to life. Morrisons shareholders have had a dismal couple of decades. But right now they are sitting on an asset that is a lot more valuable than they probably realised. They should sit tight, and wait for a higher offer to emerge. It will be worth it - because this saga has quite a way to run yet.MATTHEW LYNN3 July 2021 • 11:54am

[justiceforthemany] 03/7/2021 10:33

£6.3Bn = 261p/share
not 254p

Can anyone explain this?

[eurofox] 03/7/2021 10:32

These people have a more grand vision - vertical integration with many more food supplies from farming enterprises around the world that they have been investing in for the last decade - this is a long term plan, not one dreamt up by the short termers.

Which Supermarkets next?

[philanderer] 03/7/2021 10:31

Fortress's swoop on Morrisons could open a full-blown a bidding war for the supermarket if CD&R returns with a better offer. CD&R - which is advised by Sir Terry Leahy, the former Tesco boss - has until July 17 to make a firm offer for the retailer.

[ashleyjv] 03/7/2021 10:30

JohnCasey. I don't think you've thought that one through

[johncasey] 03/7/2021 10:27

who would want to bid for a supermarket with food shortages coming..no lorry drivers and grand solar minimum destroying crops...

[pjleeds] 03/7/2021 10:25

If you sell the goose that lays the golden egg, you want a bloody good price for the goose.

[hades1] 03/7/2021 10:24

It's a firm offer at 254p - that's not going anywhere.It's been approved by the Board.Price is effectively underpinned at 252p plus 2p dividend.No risk but will rise on speculation of higher bid.

[porsche1945] 03/7/2021 10:18

Take the money, every time.

[hades1] 03/7/2021 10:15

Early days.Clearly the Board's preferred bidder but it's early days.Expect to be trading above offer price on Monday.

[pjleeds] 03/7/2021 10:00

Looks to me like board are going to keep own jobs, by selling the shareholders down the river.

[regandharry5] 03/7/2021 09:56

It'll be 7am on Monday.

[smurfy2001] 03/7/2021 09:37

Sell and leaseback incoming.