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Fortress-led investor group strikes £9.5bn deal to buy Morrisons

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A trio of private investment groups led by SoftBank-owned Fortress have struck a £9.5bn deal to acquire Wm Morrison, Britain’s fourth-largest supermarket chain.

Under the terms of a deal unveiled on Saturday morning, Fortress along with the Canadian pension fund CPPIB and a unit of Koch Industries will pay 252p a share along with backing a 2p special dividend to buy the grocer. It values the equity of Morrisons at £6.3bn before the inclusion of £3.2bn of net debt.

The deal comes two weeks after the Bradford-based group said it had rejected an unsolicited 230p-a-share approach from the private equity group Clayton, Dubilier & Rice.

The Fortress-led bid values Morrisons shares at a 42 per cent premium to their price before the company disclosed the approach from CD&R.

The deal would be the largest UK private equity buyout since KKR bought the pharmacy chain Boots in 2007 and comes as buyout groups have announced at least 12 deals for UK-listed companies since the start of this year, as Brexit and the pandemic weigh on share prices.

Andrew Higginson, Morrisons chair, said: “We have looked very carefully at Fortress’ approach, their plans for the business and their overall suitability as an owner of a unique British foodmaker and shopkeeper with over 110,000 colleagues and an important role in British food production and farming.”

As part of the agreement, the investors set out a series of commitments including plans to keep the grocer’s headquarters in Bradford. The group said it would safeguard pensions and was “fully supportive” of the supermarket’s agreement to pay all staff at least £10 an hour.

The Fortress group said it would assess options for the future of Morrisons’ petrol stations within six months of finalising a deal. During that period it would also assess potential acquisitions, and review Morrisons’ long-term plans for its property portfolio.

Fortress said it did not anticipate carrying out any “material” sale-and-leasebacks of Morrisons’ stores. Morrisons owns 85 per cent of its 497 stores, and also has one of the UK’s largest food manufacturing businesses.

The Fortress-led group made a total of five approaches for Morrisons, beginning on May 4 when it offered 220p a share, people with direct knowledge of the matter said.

New York-based Fortress had been considering an approach to Morrisons since the end of last year, the people said. It has not previously done large UK deals of this kind.

The bidders are putting up more than £3bn in equity to finance the deal, of which around half is from Fortress and the remainder split between CPPIB and Koch, the people said. CPPIB is investing through its credit division.

The deal will be financed with £5.75bn in debt, underwritten by HSBC and Royal Bank of Canada.

Fortress is owned by Japan’s SoftBank, which acquired the business in a $3.3bn deal in 2017 that made it an unusual asset within the technology investor’s portfolio.

The group manages about $53.1bn in assets and is best known for its work in credit and distressed investing situations. It has invested in the US-based supermarkets Albertsons and Fresh & Easy.

Fortress bought the UK retailer Majestic Wine’s stores for £95m in 2019.

Rival CD&R had previously been given a deadline of July 17 to either make a firm offer for Morrisons or walk away. Now that the board has backed an alternative offer, it is not clear whether CD&R will attempt to disrupt the process with a counterbid.

Mark Kelly, a managing director at Cowen, said in a note on Saturday that the Fortress bid may not be the end of the game. “There have been recent calls from shareholders to look at prices like 270p as being appropriate,” he said.

“It is likely that Morrisons’ board saw there was a lack of tension in the absence of competition — and therefore once one [private equity] bidder tabled an offer in an acceptable range, it is an appropriate tactic to accept this, make it public and hope that a competitive auction then ensues.” 

Ross Hindle, analyst at Third Bridge, said it would be telling to see how Amazon reacted to the news. “They are a key partner to Morrisons, with much speculation that they might make a bid,” he said.

Morrisons’ largest shareholder is Silchester, a London-based asset manager that owns a 15 per cent stake. The company did not immediately comment on the Fortress bid.

A top 30 Morrisons shareholder said Fortress had sought to portray itself at the “cuddlier” end of the private equity spectrum with its offer, “with an emphasis protecting all stakeholders and not looking to use the Asda playbook on property and leverage. This narrative is likely to have been a powerful driver behind the board’s recommendation at this level,” they said.

The deal would need the approval of 75 per cent of Morrisons’ shareholders under a takeover mechanism known as a scheme of arrangement.

Additional reporting by Attracta Mooney

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