Following long-running rumours, Morrisons yesterday confirmed that it had agreed a £2.5bn deal to sell its 337-strong petrol forecourt business to sister company Motor Fuel Group (MFG), in a move that will help the struggling supermarket shore up its balance sheet.
The proposed transaction, which also includes more than 400 associated sites, marks the start of a partnership between the two companies, both of which are owned by US private equity firm Clayton, Dubilier & Rice (CD&R). The deal includes Morrisons taking a minority stake of approximately 20% in MFG and entering into commercial and supply agreements with the forecourt operator.
The forecourts will continue to operate under the Morrisons brand, with food and groceries supplied by the supermarket. The plan includes expanding and improving the convenience retail proposition on the sites in areas such as store environment, food-to-go and valeting.
Morrisons noted that there was also the opportunity to expand its supply into the MFG estate over the medium term through its wholesale operation.
Meanwhile, MFG is planning to use the Morrisons sites to roll out ultra-rapid EV charging infrastructure to tap into the rising popularity of electric cars.
Reports suggested that Morrisons will receive about £1.9bn in proceeds from the deal, which is expected to be used to reduce the retailer’s £5.5bn net debt pile. The large debt burden left over from its takeover by CD&R has hindered Morrisons in the battle against the discounters and its traditional rivals.
Morrisons stated yesterday that some of the proceeds from the forecourt sale will fund further investment in its grocery and food-making businesses. The retailer has recently been making moves to improve its price competitiveness, although yesterday’s market share data from Kantar suggests it is still struggling to make gains.
“As the needs of the customer continue to evolve, Morrisons and MFG’s partnership will see us combine our respective expertise and resources to deliver the best value for customers at the pump, in our convenience stores and in our supermarkets,” said Rami Baitiéh, Morrisons new CEO.
“It means Morrisons customers will continue to see a competitive and attractive forecourt offering, including expanded access to EV charging, while also benefitting from greater focus on investment in Morrisons’ core food business. We are delighted to have such a strong partner in MFG and look forward to the opportunities a combined MFG and Morrisons forecourt offering will provide.”
Sir Terry Leahy, the Chairman of Morrisons, added: “We’ve obviously got to ensure the Morrisons brand is a leader in the marketplace and it has money available to innovate and improve its offer. The deal will allow Morrisons to concentrate on what it does best, which is running supermarkets, c-stores and wholesale.”
Sir Terry declined to say how the fresh capital would be deployed by Morrisons, adding: “We don’t give a breakdown between the investment [in the business] and the reduction in debt.” He said “nothing was coming out of the business” and no proceeds from the deal would go back to CD&R.
Clive Black, a leading retail analyst at Shore Capital, commented: “Should CD&R sell MFG, which it has owned for some years, that equity holding of Morrisons could be quite relevant.”
He added: “Morrisons’ very stretched balance sheet was probably the prime motive for the transaction. And so notable debt reduction would be welcome”.
NAM Implications:
- Patently debt reduction was a key driver.
- But adding access to the rest of the MFG forecourt estate will be a benefit.
- However, the issue of competing against the discounters on price remains a problem…
- Added impetus for Morrisons to capitalise on potential retail media revenues.
