THE COST OF THE PANDEMIC HAS MADE MORRISON LOOK CHEAP – HENCE AN AUDACIOUS BID of £5.5 BILLION FOR THE BRADFORD BASED SUPERMARKET

June 21, 2021

During the late 20th Century, Sir Ken Morrison’s name as a top retailer was folklore anywhere North of the Trent. Sir Ken expanded the family grocery business – William Morrison – in to the fourth largest supermarket in the UK, once he had acquired Safeway in 2003 for £3.5 billion. Safeway was the key to Morrison’s Kingdom, providing the Bradford based operation with countrywide access. Safeway’s heartland was in the South of England. The Takeover Panel sat on this deal for all but ten months. The time taken for due diligence and competition concerns initially severely damaged Morrison’s operation.

However, the synergies of the two companies became very apparent and when Marc Bolland joined Morrison as CEO from Heineken in 2006, Morrison expanded its operation significantly and profitably, using attractive advertising campaigns with the likes of popular celebrities such as Alan Hanson and Freddie Flintoff. Bolland left for M&S in 2009. He was replaced by Walmart Canada’s Dalton Phillips. This was not a happy period for Morrison. The supermarket seemed to lose its way. However, the appointment of Dave Potts from Tesco soon saw Morrison’s fortunes improve. Morrison enjoyed a decent pandemic, as did other supermarkets. Unfortunately, the pandemic meant very much higher costs. Consequently, Tesco shares have fallen 30% since the turn of the year and by comparison Morrisons’ shares have only drifted by about 9%. However, three years ago in August 2018, Morrison shares stood at 263p (-32%).

Unsurprisingly to private equity companies such as Clayton, Dubilier & Rice, Morrisons looks cheap at the price. Hence CD&R, using the help of Sir Terry Leahy, the former CEO of Tesco and colleague of Dave Potts have supposedly lodged an audacious bid of £5.5 billion, plus assuming responsibility for debt totalling £3.2 billion – circa 230p a share. This has apparently been rejected out of hand, as wholly inadequate, undervaluing the business significantly. Sir Terry has recently been a very successful chairman of B&M. CD & R recently bought UDG Healthcare for £2.8 billion and they also spent £308 million buying the plumbing group Wolseley. Morrisons sales have increased by 2.7% in the 14 weeks to 9th May 2021. It will be interest to see if CD&R increase their bid.