The new private equity owners of Morrisons are reportedly working on plans to sell off the supermarket’s portfolio of food manufacturing plants, fisheries, and warehouses in a move that could raise over £600m.
According to The Sunday Times, Clayton Dubilier & Rice (CD&R) is marketing the assets in a proposed sale and leaseback transaction designed to drive up returns from its £7bn leveraged buyout of Morrisons.
The report said that while suitors have not yet been told the composition of the portfolio on offer, it is expected to include about two dozen assets. Morrisons owns nine distribution centres and 20 food manufacturing sites across the UK.
The move comes after Morrisons warned in April that its sales and core profit for the year were facing a hit from the crisis in Ukraine and rising inflation. As with other chains, the business is facing surging costs amid intense price competition as supermarkets look to hold onto cash-strapped shoppers.
Recent data from Kantar showed that Morrisons was losing market share with its sales down 9.5% in the 12 weeks to 15 May, the worst showing amongst the big four supermarkets.
Reports noted that the tough trading conditions and rising interest rates on its debt could lead to CD&R selling more of Morrisons’ assets than it had initially planned. The firm had committed not to “engage in any material store sale and leaseback transactions” after its acquisition of the supermarket. However, the Morrisons’ freehold ownership of 87% of its estate was a key factor in CD&R’s decision to pursue the deal.
Sale and leaseback deals – often used by private equity firms to boost their returns from buyouts – can be controversial. While leases may be affordable at first, they can climb, putting a strain on a business.
Last week, competition regulators cleared CD&R’s takeover of Morrisons, more than eight months after the deal was completed. The investigation by the CMA meant that CD&R had to hold off on its plans for the business.
NAM Implications:
- Selling a factory with one customer may present an issue…
- Meanwhile, the beef plants and fisheries will probably go back to their original owners.
- But what if these moves are not sufficient, in a worsening economic climate?
- i.e. Sale & leaseback becomes an increasingly appealing option.
- All distracting in terms of the day-job…
