CD&R wins $10 billion auction for UK supermarket Morrisons

© Reuters. FILE PHOTO: A view of a Morrisons supermarket in Birtley, Britain, August 16 2021. REUTERS/Lee Smith/File Photo

By James Davey and Sarah Young

LONDON (Reuters) -Clayton, Dubilier & Rice (CD&R) has won the auction for Morrisons with a 7 billion pound ($9.5 billion) bid, paving the way for the U.S. private equity firm to take control of Britain's fourth-biggest supermarket group.

The board of Morrisons recommended CD&R's 287 pence per share bid on Saturday, hours after its bid beat a consortium led by Softbank (OTC:SFTBY) owned Fortress Investment Group, which had made an offer worth just a penny less per share at 286 pence.

CD&R's victory marks a triumphant return to the UK grocery sector for Terry Leahy, the former chief executive of Britain's biggest supermarket chain Tesco (OTC:TSCDY), who is a senior adviser to CD&R.

The board recommended that shareholders vote in favour of the 287 pence per share offer at a meeting slated for Oct. 19, saying the private equity group had confirmed its previously stated intentions towards Morrisons remained unchanged.

"Today's final offer from CD&R represents excellent value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders," Morrisons Chairman Andrew Higginson said in a statement.

If shareholders approve the offer, CD&R could complete its takeover by the end of the month, making Morrisons the second UK supermarket chain in a year to be acquired by private equity after a buyout of no. 3 player Asda, completed in February.

EGGS AND BUTTER

CD&R has committed to retaining Morrisons' headquarters in Bradford, northern England, and its existing management team, led by CEO David Potts.

It also says it will execute the supermarket chain's existing strategy, not sell its freehold store estate and maintain staff pay rates.

These commitments are not legally binding, however.

Morrisons started out as an egg and butter merchant in 1899. It listed its shares in 1967 and is Britain's fourth-largest grocer after Tesco, Sainsbury's and Asda.

The takeover battle which has been running since May is the most high-profile of a raft of bids for British companies this year, reflecting private equity's appetite for cash-generating UK assets.

CD&R's winning bid was only marginally above its 285 pence a share offer which had already been recommended in August.

The final offer represents a 61% premium on Morrisons' share price before takeover interest publicly emerged in mid-June. Some analysts have said the victor may have to sell off assets, such as factories, warehouses or stores, to make a decent return.

CD&R could combine its 918 Motor Fuel Group (MFG) fuel forecourts with the 339 owned by Morrisons, opening Morrisons convenience stores on the sites, but that could face scrutiny from the competition regulator.

Leahy was CEO of Tesco for 14 years to 2011 and will now be reunited with Morrisons' Potts and Higginson, two of his closest lieutenants at Tesco.

Potts, who joined Tesco as a 16-year-old shelf-stacker, will make more than 10 million pounds from selling his Morrisons shares to CD&R. Chief operating officer Trevor Strain will pocket about 4 million pounds.

Fortress is left to lick its wounds and mull the cost of the saga. Documents published in July showed that Fortress expected to incur banking and advisory fees and expenses of 263.5 million pounds.

In a statement Fortress said: "The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value."

Sainsbury's has in recent months been mooted as another possible target for private equity and investment companies.

($1 = 0.7383 pounds)