Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Property, cash and Amazon: Why buyout firms are battling to buy UK’s Morrisons

Stock MarketsJul 07, 2021 02:07AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. Reusable shopping bags are seen for sale inside a Morrisons supermarket in New Brighton, Britain, July 5, 2021. REUTERS/Phil Noble 2/2

By James Davey and Kate Holton

LONDON (Reuters) -At least three private equity groups armed with foreign cash have lined up to do battle over Morrisons, a British supermarket with a big property portfolio and a deal with Amazon (NASDAQ:AMZN) that could help scale-up its lagging online offering.

Interest in the chain, which has recently notched up market share in Britain's cut-throat grocery business, partly reflects private equity's new-found passion for UK Plc, as the nation rebounds faster than expected from Brexit and the COVID-19 crisis.

Yet Britain's No. 4 grocer may offer more potential than some rivals. Alongside a big property portfolio and strong cash generation, Morrisons supplies Amazon Prime members with same-day food deliveries.

'Morrisons on Amazon' now accounts for over 10% of sales in the majority of Morrisons stores where it is offered. The tie-up is helping a chain that has been a laggard in the booming online market. And that alliance adds to the attraction for a buyer.

New York-based Apollo said on Monday it was weighing an offer for the chain, which began 122 years ago as a market stall in the northern English city of Bradford.

Its interest was announced after a group led by Fortress, owned by Japan's SoftBank, agreed terms for an $8.7 billion offer. Last month, an unsolicited proposal from U.S. group Clayton, Dubilier & Rice (CD&R) was rejected.


The Amazon deal dates back to 2016, when the world's biggest retailer linked up with Morrisons to gain a foothold in Britain, the world's second-biggest market for online food retail.

Morrisons is unique among British supermarkets in making half of the fresh food it sells, so it can provide wholesale supplies to Amazon, while also packing orders that the U.S. online giant delivers to its Amazon Prime customers.

The deal has sparked speculation that Amazon could buy Morrisons to turbocharge its own offering in Britain's food business, a fiercely competitive sector worth 212 billion pounds ($294 billion) a year.

But one investor in British supermarkets, who asked not to be named, said Amazon would still have to make a case for such a acquisition. "If I was an Amazon shareholder I'd want to know why that is preferable to some of the other things they could spend their money on," he said.

Amazon, which declined to comment, has previously said it kept its options for investments in Britain under review. It already owns 12.6% of British takeaway delivery firm Deliveroo.

The Morrisons battle is part of a broader revaluation of British assets, weighed down for years by uncertainty about Britain's exit from the European Union but with the outlook now clearer after new trade arrangements began in January.

The world's top private equity groups, flush with cash after largely sitting out the pandemic when markets were volatile, now believe they can price assets, even with limited visibility on the recovery. And Britain, they believe, is looking cheap.


London-listed companies are undervalued compared to U.S. and European peers, with the FTSE 100 trading on average at 13 times the 12-month forward earnings of its companies, while the S&P500 trades at 21 times and the STOXX 600 at 17 times.

Merger and acquisitions hit a record high in the seven-months to July 5, with deals worth $181.7 billion targeting British firms, Refinitiv data showed. Deals led by private equity firms to take British firms private surged to an all-time peak of $27.7 billion, after plunging to a record low of $1.1 billion in the same period last year amid the depths of the COVID crisis.

The race for Morrisons began three months after private equity group TDR with investors Zuber and Mohsin Issa completed their purchase of Asda, the UK's No. 3 supermarket.

Asda's new owners merged its petrol stations with their existing fuel business and sold distribution assets to real estate investors to help finance the deal.

Morrisons had free cash flow of 238 million pounds in the financial year before the pandemic, which private equity tends to value more than public markets.

In addition, the acquirer of Morrisons, which owns 85% of its nearly 500 stores, could look to sell and lease back property to generate cash after a deal goes through.


But such a strategy might not win a broad welcome.

"If an acquirer makes strong returns this should come from making the company a better business," said Andrew Koch, senior fund manager at Legal & General Investment Management, Morrisons' No. 8 shareholder according to Refinitiv data.

"It should not come from buying its property portfolio too cheaply, levering the company up with debt, and potentially reducing the tax paid to the Exchequer," he said, adding Morrisons should declare the value of its stores and distribution centres.

Britain's opposition Labour Party and unions have already voiced concerns about a hit to jobs and investment, although a spokesman for Britain's Conservative Prime Minister Boris Johnson has said takeover proposals were a commercial matter.

Fortress, whose offer has been recommended to shareholders by the Morrisons board, has pledged to retain the grocer's headquarters, management and strategy. It also said material store sale or leaseback transactions were not planned.

Britain's farmers union said it was encouraged.

Morrison's 15th largest investor abrdn, formerly Standard Life (LON:ABDN) Aberdeen, described the Fortress offer of 254 pence a share as "good value". But the supermarket's No. 10 shareholder JO Hambro wants nearer 270p.

Investors could be tested on their commitments to good governance were another suitor to offer a higher price without giving commitments on jobs, debt levels, investment or property.

($1 = 0.7209 pounds)

Property, cash and Amazon: Why buyout firms are battling to buy UK’s Morrisons

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
stephen outhwaite
stephen outhwaite Aug 18, 2021 5:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
those private equity firms appreciating the free cash flow are just like their juniors valuing the cash flow of market stalls.It's a good way to launder moneyAll the cocaine billions have got to be made legitimate somehowThey can't all be like Pablo, lining the walls of his houses or burying big drums of cash for people to spend years on telly hunting itIf they have all this available cash make these P.E. firms pay the the right priceIf they haven't got that much free cash then send them home again
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email