Sir Terry Leahy, the renowned former boss of Tesco, is being lined up to take on the role of Chairman at Morrisons after Clayton, Dubilier & Rice (CD&R) held off its rival during Saturday’s auction for the UK’s fourth-largest supermarket retailer.
The US private equity firm is now set to become the new owner of Morrisons after the grocer’s board backed its improved £7.1bn offer. The 287p a share bid narrowly beat the 286p offered by the consortium led by Softbank-owned Fortress Investment Group.
The Morrisons board said it would unanimously recommend CD&R’s “superior” offer to shareholders, who will vote on the deal on 19 October. If approved, Morrisons will become a private company by November.
CD&R, which was advised by Sir Terry, first made an approach in June. “We are gratified by the recommendation of the Morrisons board and look forward to the shareholder vote to approve the transaction,” Sir Teary said in a statement.
“We continue to believe that Morrisons is an excellent business, with a strong management team, a clear strategy, and good prospects.”
Sir Terry was Chief Executive of Tesco for more than a decade, leaving the group in 2011. “There are very strong indications he will become chair,” a person briefed on the private equity firm’s plans told the Financial Times. “It will follow a similar model to B&M,” he added, referring to the discount retailer that Sir Terry chaired for five years after CD&R acquired a majority stake in it in 2012.
“I would expect him to be an involved non-executive chair,” said another person, adding that CD&R’s usual modus operandi at investee companies was to establish a board with a mix of internal and external appointees.
The FT suggested that Sir Terry’s expertise in buying and marketing will be complementary to the skills of Morrisons’ Chief Executive David Potts, who is known for his organisational skills and attention to detail.
Sir Terry is also a director of Motor Fuel Group (MFG), the CD&R-owned petrol station chain that is expected to feature in the expansion of Morrisons’ convenience store operations.
CD&R’s final offer, which including debt is worth £9.8bn, cannot now be increased unless a new suitor emerges with a firm bid. Morrisons current Chairman Andrew Higginson said the offer was “excellent value” with it representing a 61% premium to the retailer’s closing price of 178p before the first bid was received in June.
Unions and politicians have been anxious about what a private equity takeover will mean for Morrisons, with concerns raised that the business could be stripped of its valuable property holdings and loaded up with debt. CD&R’s pre-auction offer had promised that the retailer’s head office would remain in Bradford, staff pay rates would be protected, and there were no plans to sell off its store estate to raise cash. However, these commitments are not legally binding.
Higginson stressed the bid would protect the “fundamental character of Morrisons for all stakeholders”, adding: “CD&R have good retail experience, a strong record of developing and growing the businesses in which they invest, and they share our vision and ambition for Morrisons. We remain confident that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business.”
Fortress admitted defeat shortly after the bids were made public on Saturday afternoon. Its managing partner Joshua Pack said he wished the company and all those involved “the very best for the future”.
The investment group is now facing banking and advisory fees in excess of £200m from the bid process. However, Fortress delivered an unambiguous signal of intent that it is looking for other acquisitions in the UK, fanning recent speculation that Sainsbury’s and Tesco are the next targets for buyout firms.
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.”
Shares in Sainsbury’s rose nearly 4% this morning on speculation that Fortress may turn its attention to the UK’s second-largest supermarket chain.
Shares in Sainsbury’s are up 28% this year, buoyed by takeover talk. That started in April when Czech billionaire Daniel Kretinsky raised his stake in the retailer to just under 10% and has been fuelled by the bid battle for Morrisons.
NAM Implications:
- Morrisons remain confident that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business.
- Unions and politicians have raised concerns that the business could be stripped of its valuable property holdings and loaded up with debt.
- These issues will be resolved over the medium and longer-term…
- Meanwhile, NAMs will need to reconsider how dealing with a publicly owned mult differs from managing a PE-owned retailer.
- See our paper The Implications of Private Equity Takeover of a Mult
