UK Leasing

Morrisons sold to Clayton, Dubilier & Rice for $ 9.4 billion in frenzied bidding war

The group led by CD&R has become the leader after outbidding SoftBank Group Body
Fortress Investment Group LLC and its partners at an unusual one-day auction held on Saturday to decide the winner. The UK Takeover Panel, a branch of government that oversees the signing of deals in the country, organized the contest to end a months-long standoff fueled by rising bids on either side.

The winning bid was a 61% increase in value from where Morrisons shares were trading before news of the bid emerged.

Based in New York and London, CD&R, which has partnered with American buyout firm Ares Management Corp.
and an investment arm of Goldman Sachs Group Inc.,
pays £ 2.87 per share, or the equivalent of $ 3.90 per share. This narrowly exceeds Fortress’s bid of £ 2.86 per share, according to a statement from the Takeover Panel.

Morrisons, as British shoppers call it, operates 497 supermarkets as well as a network of cafes, gas stations and convenience stores. The retailer also has a wholesale operation which includes supplying groceries to Inc.
Prime Now and other online delivery services available in Great Britain.

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Joshua Pack, a Fortress partner, said: “We will continue to explore opportunities” in the UK A CD&R representative could not be immediately reached for comment.

Pandemic-induced shutdowns have boosted Morrisons’ e-commerce sales tripling in its most recent fiscal year. The costs of meeting that demand by adding additional capacity coupled with other expenses related to Covid-19, combined with lower fuel sales and the closure of the company’s cafes during the lockdown, offset a large part of that gain.

The UK supermarket industry is very competitive. Morrisons, founded in 1899, is the fourth largest chain and faces stiff competition from its biggest rivals and German discounters Aldi and Lidl.

This competition has pushed US retail giant Walmart Inc.
in February to sell a majority stake in Asda Group Ltd., Britain’s third-largest grocery store behind industry leader Tesco PLC and J. Sainsbury PLC, to TDR Capital, a European-focused buyout company, and British entrepreneurs Mohsin and Zuber Issa.

Escalating selling price adds risk to deal as UK economy grapples with soaring energy prices, staff shortages and supply chain disruptions in the food industry .

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Part of Morrisons’ long-term value resides in its real estate, where it owns the majority of its stores. While both bidders sought to underscore their intention to invest in the heart of the grocery business, a person familiar with the deal said unlocking value by selling or leasing real estate was a crucial part of the calculation.

In the Asda agreement, TDR and MM. Issa sell Asda’s gas stations to EG Group, a British operator of gas stations and convenience stores that the brothers and TDR are controlling to reduce their risk.

CD&R could use the same strategy with Morrisons gas stations to help finance the acquisition of the grocery retailer. The buyout company already owns Motor Fuel Group, a chain of service stations in the UK, which could also become a customer of Morrisons wholesale food business.

Morrisons parking lots could also be useful in locating electric vehicle charging stations, according to the person familiar with the deal. The UK imposed an end to sales of internal combustion vehicles in 2030.

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The Takeover Panel organized the instant contest – which involved up to five rounds of offers coordinated by the panel in London – to end a months-long standoff fueled by ever-growing bids from either side.

It was the most high-profile government-run bidding process since the September 2018 confrontation between Comcast Corp.
and 21st Century Fox Inc., now part of Walt Disney Co.
, for the control of the European pay-TV operator Sky PLC. In such auctions, bidders rely on game theory to glean information from the various betting rounds and try to ensure that even if an auction fails, the rival spends as much as possible.

The deal for Morrisons is part of a wave of deals globally and particularly in the UK, where US and overseas buyers have rushed after Brexit and the pandemic to close deals. The companies have closed deals worth nearly $ 4.3 trillion worldwide so far this year, according to Dealogic, on the verge of breaking the 2015 record.

The bidding for Morrisons began in mid-June when CD&R made an initial bid worth about $ 7.6 billion, about 26% more than its market value of about $ 6 billion. billion dollars at the time. The company rejected the offer.

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In July, the company accepted an $ 8.7 billion offer from Fortress, which is backed by the Canada Pension Plan Investment Board, the real estate arm of Koch Industries, a private conglomerate run by the billionaire Charles Koch and Singapore sovereign wealth fund GIC Pte. The following month, he then raised his bid to $ 9.3 billion.

CD&R raised the stakes at the end of August with a counter-offer of $ 9.5 billion, based on the exchange rates at the time. The supermarket chain’s board said it was superior to Fortress offerings. The Takeover Panel then ordered the auction.

CD&R is a buyout specialist that is known both for its large transactions and for its recent shift towards more growth-oriented investments. It targets a wide range of industries, including retail, healthcare, and technology, and has invested more than $ 35 billion in 100 companies since its inception in 1978. Earlier this year, along with KKR & Co., it paid about $ 5.3 billion to take on a private software company. Cloudera Inc.
Other notable investments over the years include stakes in Hertz Corp.
, Lexmark and Kinko.

Write to Ben Dummett at [email protected]

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