By James Davey
LONDON (Reuters) -Shares in Morrisons surged as much as 33% on Monday on hopes that U.S. private equity firm Clayton, Dubilier & Rice (CD&R) might raise its proposed offer for the British supermarket group or flush out interest from other suitors.
Morrisons, Britain’s fourth-largest grocer by sales behind market leader Tesco (LON:TSCO), Sainsbury’s and Asda, on Saturday said it had rejected a proposed cash offer from CD&R.
The company said the offer of 230 pence per share, equating to 5.52 billion pounds ($7.62 billion), “significantly undervalued” the group and its future prospects.
Morrisons shares were up 56.35 pence at 234.7 pence by 0726 GMT.
Under British takeover rules CD&R has until July 17 to announce a firm intention to make an offer.
Rivals Tesco and Sainsbury’s rose 2.4% and 4.2% respectively on hopes that the whole sector could be in play, analysts said.
Including net debt of 3.17 billion pounds, CD&R’s offer gives Morrisons an enterprise value of 8.7 billion pounds.
Analysts expect CD&R to assess investor reaction before deciding on its next move. Silchester is Morrisons’ largest investor with a 15% stake, Refinitiv data shows.
Silchester declined to comment on Monday.
Morrisons has a partnership agreement with Amazon (NASDAQ:AMZN) and there has long been speculation that the online shopping giant could emerge as a possible bidder.
SECTOR IN FOCUS
CD&R’s approach underlines private equity’s growing appetite for UK supermarket assets, attracted by their cash generation and freehold assets.
Zuber and Mohsin Issa in February joined forces with private equity firm TDR Capital to purchase a majority stake in Asda from Walmart (NYSE:WMT) in a deal valuing the UK supermarket group at 6.8 billion pounds.
In April Czech billionaire Daniel Kretinsky raised his stake in Sainsbury’s to almost 10%, fuelling bid speculation.
Industry executives and some sector analysts believe the stock market has failed to recognise the inherent value in Britain’s listed supermarket groups.
They argue that if equity markets do not value them appropriately, acquirers will.
“There’s a sense of value investors want a very binary story about knuckling down, keeping capex to a minimum and just becoming a cash machine,” one senior supermarket executive told Reuters.
Shares in both Morrisons and Tesco closed on Friday below their pre-pandemic levels.
While sales have soared at all British supermarket groups during the coronavirus crisis, their profits have fallen because of the huge extra costs incurred.
($1 = 0.7243 pounds)
Morrisons shares leap after takeover approach rebuffed
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