Another II post
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(Alliance News) - Wm Morrison Supermarkets PLC late Thursday accepted a raised offer from Clayton, Dubilier & Rice worth GBP7.0 billion, though analysts on Friday noted that the market does not expect rival suitor Fortress Investment Group LLC to go down without a fight.
Fortress on Friday asked Morrisons shareholders to take no action on the new CD&R bid, saying it is "considering its options" with respect to the all-cash offer it made at the start of July and increased at the start of August. The Softbank Group Corp-owned private equity firm said it will make a further announcement "in due course".
"Another offer from Clayton, Dubilier & Rice has reignited the bidding war for Morrisons. The improved offer has got the backing of management, and a higher price might seduce some shareholders who were previously sceptical about whether the company was being sold at the right price," Hargreaves Lansdown Equity Analyst Nicholas Hyett commented.
Morrisons shares were 4.3% higher at 291.32 pence each in London on Friday afternoon, valuing the company at GBP7.05 billion. CD&R's improved bid is for 285p per Morrisons share. The all-cash offer will be part-funded by loans from Goldman Sachs Group Inc, BNP Paribas SA, Bank of America Corp and Mizuho Financial Group Inc, CD&R said.
"This might not be the end of the story. Rival bidder Fortress has urged investors to hold fire on accepting the deal and are expected to make a further statement in due course. With the shares currently trading above the new and improved offer price, the market clearly thinks a better offer is a distinct possibility," HL's Hyett added.
The new CD&R offer has been unanimously accepted by the board of the Bradford-based grocer, and directors have said shareholders should vote in favour of the takeover at a meeting due in early October. If they do, the deal is expected to complete in the same month.
As a result, Morrisons withdrew its recommendation for investors to accept a previous 272p-per-share takeover bid from a consortium led by Fortress, worth GBP6.7 billion.
Investors had eagerly awaited CD&R's next move, after its first proposal worth GBP5.5 billion was rejected by the supermarket back in July. CD&R was then given until Friday to decide whether to outbid Fortress.
The New-York based private equity firm said Morrisons has "differentiated operational strengths", including its freehold property portfolio, wholesale business and partnerships with Ocado Group PLC and Amazon.com Inc.
The firm revealed some of its plans for the supermarket, including a potential commercial partnership with CD&R's Motor Fuel Group, which owns over 900 petrol stations in the UK.
Back in July, analysts at German bank Berenberg drew parallels to the takeover saga of grocer Asda, which is now in private hands.
In October, EG Group and private equity backers TDR Capital agreed a deal to take control of the UK supermarket chain from US retailer Walmart Inc. EG Group also operates forecourts.
Analysts at Shore Capital Markets commented: "CD&R has made a number of statements in relation to Morrisons, outlining that it believes the supermarket is a 'high quality business and well-positioned within UK grocery'.
"It also calls out its heritage and speaks to the legacy of the late Sir Ken Morrison."
Terry Leahy, a former Tesco PLC chief executive and advisor to CD&R said the private equity firm is "committed to supporting" Morrisons.
AJ Bell analyst Danni Hewson said: "It won't hurt shareholder sentiment that retail royalty Sir Terry Leahy is a senior advisor on this deal, and he took the opportunity last night to play on emotions, spotlighting his relationship with the late Sir Ken Morrison. But ultimately this is a numbers game and in business sentiment often only goes so far."
The Times reported Leahy said during a video message that he "knew Sir Ken Morrison well" and understood his "values and vision".
AJ Bell's Hewson noted the presence of Amazon could also prove interesting. The e-commerce firm had once been tipped by analysts to join the race to buy Morrisons.
"Will Fortress pick itself off the mat and find another level? It is a real possibility. Morrisons is unique, its production capabilities make it extremely attractive at a time supply is becoming a huge issue and the Japanese bank behind Fortress has deep pockets. Then there's the Amazon factor. No one really expects they'll table a bid, but even their position on the field is a huge factor," Bell added.
Analysts at Shore said the ball has been "placed back into the Fortress side of the court".
The takeover battle for Morrisons has been rumbling for months. In June, Morrisons rejected a GBP5.5 billion offer made from New York-based CD&R, which had sent the supermarket chain's share price soaring but which Morrisons ultimately said it was too low.
In addition, asset manager Apollo Global Management decided against making an offer for Morrisons. In July, Apollo said it was in the "preliminary stages of discussions" with Fortress, with a view of joining the consortium.
Later in July, GIC, one of the managers of Singapore's sovereign wealth funds, joined the bidding consortium led by Fortress.
At the time, this cooled the potential for a bidding war and ensured the Fortress-fronted consortium was the leader in the race to acquire Morrisons.
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