Wm Morrisons’ (LON: MRW) (MRW) share price surged over 30% at market close on Monday after New York-based private equity firm Clayton Dubilier & Rice (CDR) offered to buy the supermarket group for £5.5bn.
Morrisons shares closed at 228p, just below the 230p-a-share proposed by Clayton Dubilier & Rice.
The share price at the open today spiked to 239p, before settling 0.75% lower at 237p at the close.
Morrisons’ board rejected the offer, saying it significantly undervalued the company and its future prospects.
There is now speculation the move may prompt a bidding war.
While CDR could be preparing for a higher bid, Amazon, which has a close grocery relationship with the supermarket, could gatecrash the party. There may also be interest from private equity firms Lone Star and Apollo, who previously bid for Asda.
A new wobble in the trolley wars
Dr Gordon Fletcher, retail expert at the University of Salford Business School, comments on the failed takeover of Morrisons and what it means for the supermarket wars.
He said: “Morrisons rejection of a £5.5bn bid from the US private equity group Clayton, Dubilier & Rice is the first salvo in a post-pandemic grocery shakeup. While all the major food retailers have remained open throughout the pandemic, each of them has also faced a range of challenges to their well-honed business models. For Morrisons the challenges have been somewhat different to its competitors. It owns most of its properties as well as much of its own supply chain. Lockdown has brought new and unexpected costs. However, in a world increasingly more sensitive to issues of sustainable food production, origin traceability and fair wages across the supply chain this situation is an enviable asset in the long run.
“Many observers of the proposed takeover have been sensitive to the negative impact of asset-stripping private equity ownership. A criticism that has also become more vocal recently with the failure of Debenhams and the inability for large chains burdened by debt to respond appropriately or quickly to unexpected changes in the market. Of equal concern is the impact of further foreign ownership in the retail sector and the potential pressure this will bring to relax food import restrictions from the US in a post-Brexit Britain.
“A decade ago criticisms of Morrisons focused on its tardiness in keeping up with the market trend for home deliveries. But after buying in US expertise in 2013 the criticism now appears to be reversed. With this first offer there is a real potential for other bidders to come to the table including Amazon. With Morrisons owning the UK’s same day delivery channel through Amazon the retailer is now leapfrogging the competitors by integrating with the familiar 1-Click offering of the world’s largest online department store. A closer connection between Morrisons and Amazon would also be a major challenge to the Sainsburys’ £1.4bn purchase of Argos five years ago. Another big power shift in the UK high street.”
If Morrisons is swallowed up by a private equity firm, it would be the latest major British business to be taken off the public markets.
Morrisons is the United Kingdom’s fourth-biggest supermarket chain, has 498 stores and employs roughly 118,000 people. The business was founded by William Morrison in 1899, Bradford, England.