Morrisons - recommended takeover offer

[Gengulphus]

The Morrisons directors are recommending a takeover offer at 254p/share (2p of which is to be paid as a special dividend and the other 252p as a capital payment for the share). This makes the company pretty likely to be taken over - it could in principle be rejected by shareholders, but it's quite rare for the big shareholders to go against director recommendations. I.e. a takeover seems very likely to happen in practice, making it a matter for this board (unlike an earlier takeover approach at 230p/share, which was rejected by the Morrisons directors a couple of weeks ago and discussed on the company share news board). This new offer is also being discussed there (see viewtopic.php?p=424358#p424358), but practical HYP-specific discussion may be more appropriate in this thread...

One point I would make is that with both a recommended bidder and a rejected bidder who might come back with a higher offer, there may be the potential for a bidding war here. So if the share price wanders above 254p, don't think that this takeover is pretty inevitable and the market is irrationally offering you a bonus over its 254p value: the truth is that a takeover is pretty inevitable, but not necessarily this takeover. If that happens, it might of course still be worth selling at the market price just to get it over with and avoid the possibility of getting less than you could because no higher bid emerges, but do be aware that it also misses out on the possibility of getting more than you could because a higher bid does emerge...

For me and assuming this takeover goes through this year, Morrisons is going to be one of HYP's financial successes: an internal rate of return (XIRR) of 9.5-10.5% (depending on how soon it goes through), which is produced by total dividends of about 15% of the total I've invested in the holding, plus capital gains of about 30% of that total invested. But that overall picture conceals some significant details:

* Back in 2013 and 2014, I invested about 45% of the total I've invested, at prices varying from 159.24p to 274.57p and averaging 224.57p. That produced about 39% of the shares in my holding, and those shares have produced dividends totalling about 30% of the amount invested in them, plus a capital gain of about 13% assuming the takeover goes through at 254p, for about a 43% total return. For an average holding period of about 7.5 years, that annualises to about 4.9% per year - not a disastrous rate of return for a HYP share, but definitely rather disappointing. (And the reason for that disappointment isn't hard to find: Morrisons cut its dividend by nearly 2/3rds in 2015/2016 and it was still at little more than half of its pre-cut level this year.)

* Late last year, I decided to top up my holding of Morrisons significantly and in February, I topped it up a bit more. Those top-ups used the other ~55% of the total I've invested to buy the remaining ~61% of the shares in my HYP's holding, at prices varying from 171.80p to 179.59p and averaging 178.48p. Again assuming the takeover goes through at 254p, that's an average capital gain of about 42% over a average period of less than 6 months, which annualises to a rate of capital return of over 100% - and there's also been a 5.11p dividend paid, boosting that massive rate of return a bit more.

So what would appear on the overall figures to be a very satisfactory rate of return on a HYP share that I've held for over 8 years turns out on further analysis to actually be a blend of a disappointing rate of return on a decently long-term holding and a stupendous (but clearly unsustainable!) rate of return on an unintentionally-short-term holding... An object lesson in how many of the statistics we quote on this board can end up being rather misleading about how HYPs perform!

Gengulphus

[Gengulphus]

RNSes this morning (so far, and excluding those which are just for routine regulatory reasons such as significant holders declaring their holdings):

Official Morrisons RNS confirming their recommendation of the Fortress offer

Apollo announces that they are considering making an offer

It's also worth mentioning that the earlier RNS about Morrisons' rejection of the possible offer by Clayton, Dubilier & Rice contained a Takeover Panel 'put up or shut up' deadline:

In accordance with Rule 2.6(a) of the Takeover Code, CD&R is required, by no later than 5.00 p.m. on 17 July 2021, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Takeover Code or announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Takeover Code applies. This deadline can be extended with the consent of the Panel on Takeovers and Mergers in accordance with Rule 2.6(c) of the Takeover Code.

So as well as the definite bidder Fortress, there are currently two potential bidders in play that we know about - others might still be lurking...

Gengulphus

[Gengulphus]

Responding to a HYP-specific comment on the company share news board, in viewtopic.php?p=425129#p425129:

Of course, I don't deny MRW has not been the best investment, but that does not mean my patience has worn thin, especially not when all UK businesses clearly have problems of various sorts during Brexit/covid. The takeover is a curate's egg: on the one hand it is an example of market trading which gives the opportunity to refresh. On the other it's a wretched nuisance which goes wholly against the grain for a LTBH HYPer whose interest is only or mainly in the income over the long term.

The trouble for LTB&H HYPers (*) is that (at least IMHO) it looks just about inevitable that Morrisons will be taken over - not necessarily by the current recommended offer, but if not by that one, then by a higher competing offer. Morrison might or might not have a long-term future (whether it does depends on what its acquirer does with it), but it seems extremely unlikely that HYPers will be financially interested in Morrison's future for anything other than the short term - probably just a few months. So the range of practical actions that HYPers can take when running their HYPs is quite restricted - basically, try to get as much as possible for their shares, or hang on to get the winning offer's price plus the (IMHO forlorn) hope that Morrison will somehow end up not being taken over. IMHO, it will probably be the case that the highest price obtainable on the market between now and the winning offer going through turns out to be higher than the winning offer's price, but that price will only be obtainable after the winning offer has been announced and before it becomes clear that the other offerors won't raise it further. That makes it very much a short-term trading decision - something that I'm pretty certain most HYPers don't rate their own skills at, since most people who do rate their own short-term trading skills will probably be running a short-term trading strategy rather than a HYP strategy...

In short, takeover situations like the current one for Morrisons make LTB&H considerations just about irrelevant for the holding - a situation that, no matter how regrettable it is for LTB&H holders, needs to be faced as a matter of practical reality.

(*) Not that there's any such thing as a non-LTB&H HYPer!

Gengulphus

[tjh290633]

The trouble for LTB&H HYPers (*) is that (at least IMHO) it looks just about inevitable that Morrisons will be taken over - not necessarily by the current recommended offer, but if not by that one, then by a higher competing offer. Morrison might or might not have a long-term future (whether it does depends on what its acquirer does with it), but it seems extremely unlikely that HYPers will be financially interested in Morrison's future for anything other than the short term - probably just a few months. So the range of practical actions that HYPers can take when running their HYPs is quite restricted - basically, try to get as much as possible for their shares, or hang on to get the winning offer's price plus the (IMHO forlorn) hope that Morrison will somehow end up not being taken over. IMHO, it will probably be the case that the highest price obtainable on the market between now and the winning offer going through turns out to be higher than the winning offer's price, but that price will only be obtainable after the winning offer has been announced and before it becomes clear that the other offerors won't raise it further. That makes it very much a short-term trading decision - something that I'm pretty certain most HYPers don't rate their own skills at, since most people who do rate their own short-term trading skills will probably be running a short-term trading strategy rather than a HYP strategy...

In short, takeover situations like the current one for Morrisons make LTB&H considerations just about irrelevant for the holding - a situation that, no matter how regrettable it is for LTB&H holders, needs to be faced as a matter of practical reality.

(*) Not that there's any such thing as a non-LTB&H HYPer!

Gengulphus

I have usually sold once it seems certain that the deal will go through hanging on for any dividends that are coming.

I do not see why I should wait for the money when it could be invested in something more useful, missing XD dates or even opportunities in the market. William Hill's price hung around the agreed price for a long time before the money was forthcoming. They were not paying dividends, in any case, and I see that I sold on 29th December 2020.

TJH

[scrumpyjack]

I have usually sold once it seems certain that the deal will go through hanging on for any dividends that are coming.

I do not see why I should wait for the money when it could be invested in something more useful, missing XD dates or even opportunities in the market. William Hill's price hung around the agreed price for a long time before the money was forthcoming. They were not paying dividends, in any case, and I see that I sold on 29th December 2020.

TJH

Yes that's what I thought years ago and when P&O were being taken over the bid seemed certain to go through but was taking a long time to do so and the SP had settled just below the bid price (normally a sign that Mr Market does not expect a higher bid). So I sold. A week or so later another bid came out of the blue, substantially higher, from the far east (Temasek). Rather irritating.

So it's not over til its over and there is a risk in not letting it all play out.

[csearle]

Anyone know what the value per share of the Morrisons assets actually is?

[88V8]

Anyone know what the value per share of the Morrisons assets actually is?

I read somewhere 175p.

V8

[csearle]

Anyone know what the value per share of the Morrisons assets actually is?

I read somewhere 175p.

Thank you. That might be a good starting point of whether to stick or twist. C.

[AleisterCrowley]

I paid about 178 many years ago, but such a small dollop I'm not going to worry too much about breaking even
(and I had all the divis of course)

[Itsallaguess]

I paid about 178 many years ago, but such a small dollop I'm not going to worry too much about breaking even

(and I had all the divis of course)

Asset stripper...



Cheers,

Itsallaguess

[AleisterCrowley]

Yep! I'm a heartless capitalist

[pje16]

My average price since first purchase in 2016 is £1.81

[MDW1954]

Anyone know what the value per share of the Morrisons assets actually is?

I read somewhere 175p.

Thank you. That might be a good starting point of whether to stick or twist. C.

Chris,

The factories and the freehold ownership vastly complicate things. I've seen estimates of 300p a share as the takeout price, based only on the freehold. 325p with the manufacturing businesses...?

I won't be accepting anything below 310p, but might not be given the choice.

MDW1954

[csearle]

I read somewhere 175p.

Thank you. That might be a good starting point of whether to stick or twist. C.

Chris,

The factories and the freehold ownership vastly complicate things. I've seen estimates of 300p a share as the takeout price, based only on the freehold. 325p with the manufacturing businesses...?

I won't be accepting anything below 310p, but might not be given the choice.

interesting view. C.

[MDW1954]

Thank you. That might be a good starting point of whether to stick or twist. C.

Chris,

The factories and the freehold ownership vastly complicate things. I've seen estimates of 300p a share as the takeout price, based only on the freehold. 325p with the manufacturing businesses...?

I won't be accepting anything below 310p, but might not be given the choice.

interesting view. C.

Things might have changed, but a few years ago Morrisons was the country's largest food manufacturer. Fact! Yet its lowly rating is that of a beaten-down retailer.

MDW1954

[TahiPanasDua]

The takeover will be what it will be and I think there is nowt we can do about it.

Trying to see the bright side, I will welcome the opportunity to convert more of my individual shares to ITs and ETFs.

TP2.

[Gengulphus]

The takeover will be what it will be and I think there is nowt we can do about it.

That's not the case, in two ways:

* As far as doing something that affects the outcome for the company is concerned, we can vote on the scheme of arrangement that implements the takeover. That might be quite difficult, depending on whether our holdings are nominee holdings and if so, how good our brokers are about voting on company resolutions, and our holdings are probably all so small that our votes have a negligible (though nonzero) chance of changing the outcome of the vote. So I can easily understand anyone deciding it's not worth doing - but it is something we can in principle do about the takeover...

* Rather more significantly, as far as the outcome for our HYPs is concerned, we can decide whether to sell at the current market price. If no higher bid emerges than the current Fortress bid of 254p, selling now will currently result in getting an extra ~13p/share - but if a higher bid does emerge, selling now will probably result in getting less per share than that higher bid. So making a decision about that is something we can do in practice, and making the right decision rather than the wrong decision is likely to have worthwhile consequences.

Of course, making the right decision rather than the wrong decision is easier said than done, and I can't really advise how to do it! But my decision so far has been that, in light of the share price rise after the RNS announcing Apollo's interest causing Morrison to become the largest holding in my HYP and big enough that I would normally start considering top-slicing it, I should do a minor top-slice on it. So I've sold about 1/6th of my holding and I'm guaranteed to have made the right decision about a fraction of my holding - but whether that fraction is 1/6th or 5/6ths remains to be seen!

Gengulphus

[moorfield]

I have usually sold once it seems certain that the deal will go through hanging on for any dividends that are coming.

I do not see why I should wait for the money when it could be invested in something more useful, missing XD dates or even opportunities in the market. William Hill's price hung around the agreed price for a long time before the money was forthcoming. They were not paying dividends, in any case, and I see that I sold on 29th December 2020.

TJH

Yes that's what I thought years ago and when P&O were being taken over the bid seemed certain to go through but was taking a long time to do so and the SP had settled just below the bid price (normally a sign that Mr Market does not expect a higher bid). So I sold. A week or so later another bid came out of the blue, substantially higher, from the far east (Temasek). Rather irritating.

So it's not over til its over and there is a risk in not letting it all play out.

The difference is selling now would invoke portfolio churn, whereas letting it play out wouldn't. One course of action is what pyad meant by "market trading", the other can be dubbed "market tinkering" perhaps.

[Gengulphus]

There's been a less-than-fully-noticeable development this morning: Apollo has basically committed itself to not making an offer - see my post viewtopic.php?p=428979#p428979 on the Company Share News thread for details.

As far as HYP-specific matters are concerned, I've personally decided to go for the bird-in-the-hand approach of selling at this point, at prices in the region of 261.4p (plural 'prices' because my holdings were split between multiple accounts). This is not a recommendation that others do likewise - for me, it's a could-go-either-way judgement call as far as financial considerations are concerned, that has ended up being decided more on personal considerations than financial ones. My main reason for saying that I've sold is just a 'heads-up': since I no longer own any Morrisons shares, I'm a lot less likely to notice any more news about this takeover from now on!

Gengulphus

[Arborbridge]

There's been a less-than-fully-noticeable development this morning: Apollo has basically committed itself to not making an offer - see my post viewtopic.php?p=428979#p428979 on the Company Share News thread for details.

As far as HYP-specific matters are concerned, I've personally decided to go for the bird-in-the-hand approach of selling at this point, at prices in the region of 261.4p (plural 'prices' because my holdings were split between multiple accounts). This is not a recommendation that others do likewise - for me, it's a could-go-either-way judgement call as far as financial considerations are concerned, that has ended up being decided more on personal considerations than financial ones. My main reason for saying that I've sold is just a 'heads-up': since I no longer own any Morrisons shares, I'm a lot less likely to notice any more news about this takeover from now on!

Gengulphus

There's much to be said for the simple approach, even though there's a gamble that pricewise it might turn out to be the wrong "guess". It's done and dusted: now you can move on.

Arb.