US private equity giant strikes deal with rival to seize Morrisons

US private equity giant Apollo nears agreement to join forces with group of foreign bidders for Morrisons, tightening consortium’s grip on grocer

US private equity giant Apollo is nearing an agreement to join forces with a group of foreign bidders for Morrisons supermarkets, strengthening the consortium’s hold on the supermarket chain.

Fortress, which is backed by Japanese investment giant Softbank, has teamed up with American businessman Charles Koch and the Canada Pension Plan Investment Board to agree a £6.3bn offer for the Bradford-based chain.

Talks to get Apollo on board ‘progress’ to completion, putting enormous pressure on rival bidder Clayton Dubilier & Rice to walk away or outperform the existing bid.

In fashion: interest in supermarket chain Morrisons follows a blow to Asda last year

Sources said the chances of Apollo aligning with Fortress were now very likely.

The agreed offer of £2.52 per annum for shares is 42 percent higher than the share price in June before the private equity stake in Morrisons came forward. The offer also includes a commitment to pay a dividend of 2 pence per share. Morrisons shares closed at £2.67 on Friday.

City sources said joining the group would make Apollo harder for rivals to bid higher, adding that its expertise in global credit markets could lower the cost of completing the bid.

Apollo said last week that it is considering joining Fortress and its partners and conducting early talks, but with no certainty of an agreement.

Sir Terry Leahy, the much-vaunted former chief executive of Tesco and a former colleague of Morrisons chairman Andy Higginson and chief executive David Potts, is advising rival bidder CD&R. The Mail on Sunday reported last week that JPMorgan had formed alongside Goldman Sachs advising CD&R. A third bank, BNP Paribas, was mentioned days ago.

CD&R has until August 9 to make an offer — just a week before Morrisons shareholders are due to vote on the Fortress consortium’s offer.

CD&R would have to outperform the existing bid and most likely match or improve on a set of guarantees published on the London Stock Exchange to gain any chance of backing from Morrisons’ board.

The guarantees – to be honored for 12 months after a deal is closed – include maintaining the company’s headquarters in Bradford, honoring existing agreements with suppliers and not weakening the supply chain by dividing parts of the property. sell them for a quick profit and then rent them back.

An experienced City source said, “It’s hard to see how bidders can go much higher than the current price without doing exactly the things Fortress has promised not to do: pressure suppliers, beat up property.”

But another warned there could be significant “rub room” within the commitments.

One strategy would be to create a separate real estate company, still owned by an umbrella parent group, but separate from the food retail business. Once a separate division was created, it would be easier to strip parts of the real estate portfolio over time or sell larger groups of retail assets under new owners in the future, the sources said.

“This is all about the dark arts of private equity where anything becomes possible and nothing is ever easy,” said a source.

Morrisons shareholder JO Hambro has called on the chain’s suitors to raise their offer price to 270 pence per share, although it has already sold some of its shareholding for less than that price.

It is likely that many of Morrisons’ existing shareholders would give in to the existing price.

Interest in Morrisons follows a plunge on Asda last year by two little-known businessmen, the Issa brothers, and their private equity financiers TDR Capital.

It was reported last month that the new Asda owners sold their distribution network for £1.7 billion, sparking more speculation that private equity firms could try to remove salable assets from other supermarket chains. There has been speculation about a bid for Sainsbury’s, whose share price is up 23 percent in 2021.