Top investor Morrisons rejects private equity offer for supermarket

Morrisons executives humiliated as supermarkets’ largest shareholder rejects £6.3bn private equity takeover with board approval

Morrisons executives were humiliated last night when the supermarket’s largest shareholder turned down a £6.3bn private equity takeover that had been approved by the board of directors.

In a scathing statement, Silchester said it was “not inclined” to accept the offer from a consortium led by Fortress – because it was too low.

The group, which owns 15.1 percent of the supermarket, said that “there is little in the offer that Morrisons as a publicly traded company could not live up to”.

Humiliated: Silchester's intervention shamed the Morrisons board - including Andrew Higginson, David Potts (pictured) and Rooney Anand

Humiliated: Silchester’s intervention shamed the Morrisons board – including Andrew Higginson, David Potts (pictured) and Rooney Anand

It also hammered the board for recommending the deal rather than waiting for higher bids. Silchester, a secret investment company in London, urged the bosses to allow more time for further, better offers.

His intervention shamed Morrisons’ board of directors – including chairman Andrew Higginson, chief executive David Potts and senior non-executive director Rooney Anand – after they agreed to the takeover and recommended shareholders to roll back the deal.

Fortress’s bid of 254 pence per share was lower than the price that supermarket stocks charged just three years ago, before the pandemic tore up profits. Silchester’s announcement came after the market closed, with shares trading at 266.1p, suggesting investors expect a higher bid to follow.

Rival private equity firm CD&R has rejected a £5.5bn offer by its board of directors and may come back with an improved offer.

Fortress bosses need 75 percent of shareholders to back the deal and may need to come up with more to convince them. Legal & General, the eighth largest shareholder with a 2.8 percent stake, says Morrisons should not be delisted for the ‘wrong reasons’.

Analysts at Canaccord Genuity said shareholders would have to pay 314 pence per share, or £7.6 billion. Other analysts suggest a price between 270p and 280p.

The capitulation by the Morrisons board sparked outrage in Westminster and the City, leading to claims that Sir Ken Morrison, whose father founded the grocer, would be turning in his grave.

Under the terms of the Fortress offer, Morrisons executives will share nearly £35 million in shares and bonuses. Non-executives led by Chairman Higginson could earn an additional £750,000.

The independent directors were labeled ‘stooges’ for supporting the offer. Morrisons said the bid of 254 pence on June 18, the day before the first offer, represented a 42 percent premium to the grocer’s share price of 178 pence. Silchester’s move is likely to spark a bidding war, with CD&R expected to come up with a higher bid before the August 9 deadline.

This would disrupt the path to a shareholder vote on the Fortress offer at a general meeting on Aug. 16, where 75 percent of shareholder votes must be kept private. There are fears that a private equity buyer could burden the company with debt or sell off some of its owned property to fund the acquisition, potentially making it more vulnerable to a recession.

Fortress has made commitments, which are not legally binding, to preserve the estate of the founding family.

But Silchester said Morrisons was already freeing up value from his property and that core supermarket businesses are “strong and respected.” Last week, US private equity firm Apollo Global Management said it would not only bid for Morrisons, but was looking to join the Fortress consortium. CD&R and Morrisons declined to comment.

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