After an intense four-month battle, “we were expecting the mother of all food fights” at last weekend’s auction for Morrisons, said Ben Marlow in The Daily Telegraph. It proved “strangely underwhelming”. Clayton, Dubilier & Rice (CD&R) beat its US private-equity rival Fortress by “just 1p-a-share” – buying Britain’s fourth-largest supermarket for around £10bn (including £3bn in debt). It’s a triumph for former Tesco chief Sir Terry Leahy, who is tipped to return to a British grocer a decade on as Morrisons’ new chairman. But the outcome for other stakeholders looks less rosy. Morrisons’ debt “will more than double” just as a supply crisis is swamping the country, placing CD&R “under intense pressure” to give the supermarket “the full private-equity treatment”.
In fairness, CD&R does enjoy a better reputation “as a builder of companies” than most of its peers, said Nils Pratley in The Guardian. But this is “still a leveraged buyout that relies on debt gymnastics”. Ominously, its “behavioural pledges” – covering asset disposals, staff pay and treatment of suppliers – are “vague” and last for only 12 months.
Given the hard work needed “to justify this deal”, loser Fortress might even be feeling “a little relieved”, said Lex in the FT. Still, the price paid for Morrisons – a “chunky” 61% premium on its “undisturbed” share price – “highlights the frenzied interest in Britain’s supermarket sector”, said Oscar Williams-Grut in the London Evening Standard.
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Morrisons follows Asda as the second big grocer to fall into private equity hands this year. Who’s next? Shares in Sainsbury’s, Ocado and Tesco have surged amid speculation they might also be targeted. Tesco’s near £20bn market cap was once thought to be insurmountable, but “in the current climate”, rule nothing out.
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