It will be an exciting weekend for the shareholders and management of Morrisons. The chain has been part of a fierce takeover battle between two American private equity parties for months, and this weekend will see a spectacular and unusual finale: an auction will show which of the two parties will take the lot. The two investors, Fortress and Clayton, Dubilier & Rice (CD & R) will fight it out among themselves in a bidding battle of no more than five rounds, on which Monday the new owner will be announced. This last happened in 2018, when the British media company Sky was acquired by Comcast, which won over Fox after a fierce bidding battle.
Morrisons is a sought after prey for private equity parties. The UK’s fourth supermarket chain accounts for an important part of food production itself, from farms and slaughterhouses to its own fishing fleet. As a result, they have a lot of influence on the prices they can charge. Plus, Morrisons owns 90 percent of the real estate. This makes it a stable investment.
The opening salvo sounded in June by CD & R, who released a hostile bid on Morrisons. The bid, amounting to a total of GBP 5.5 billion, was considered too low by the shareholders. Meanwhile, the management of Morrisons was already in advanced acquisition talks with Fortress. Fortress’s bid, about 6.5 billion pounds (more than 7.5 billion euros) , also failed to reach the shareholders. The highest provisional offer of £ 7 billion (over € 8 billion) was made by CD & R.
CD & R and Fortress are now having a staring contest: both wait with their final bid, giving the impression that there is even more in it to trump the other. According to UK takeover law, an auction follows after 46 days of staring-without blinking. Otherwise, such a bid battle can go on forever, and at Morrisons they now want peace in the tent. An auction like this is a rarity and a typical British phenomenon. It can only be done with listed companies, because it is really only about the price per share. The purchase deed is therefore much easier than with almost any other transaction. Even the contract for buying a house is more complicated.
The multi-billion-dollar auction has been set up in advance. On Saturday, CD&R and Fortress are offered a bid, which gives the lowest bidder the chance to raise. If he agrees, there will be another round – up to a maximum of five. If it comes to a decisive fifth round, CD & R must end with an odd number and Fortress with an even number. This will prevent the same bid being placed on the table twice. If one of the parties decides to leave, the auction will end. Should one of the two withdraw in advance, the whole auction will not take place. However, according to Minnigh, this is not in line with expectations.
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