U.K. Grocer Morrison Rejects $7.6 Billion Proposal From CD&R

(Bloomberg) —

Wm Morrison Supermarkets Plc rejected as undervalued an unsolicited proposal from U.S. buyout firm Clayton Dubilier & Rice LLC that valued the U.K. grocery chain at about 5.5 billion pounds ($7.6 billion).

Morrison received a proposed cash offer at 230 pence a share on June 14 and rejected it three days later after discussions with its adviser Rothschild & Co., the company said in an emailed statement Saturday. The proposal is about 29% more than Friday’s close in London, a hefty premium for investors nursing a 6.3% decline over the past 12 months.

Private equity investors are seeking to capitalize on the improving fortunes of leading supermarket chains after lockdowns triggered a surge in in-store and online grocery spending. Morrison and competing U.K. supermarkets including Tesco Plc and J Sainsbury Plc appear to have weathered the reopening of restaurants well, suggesting that consumer habits may have permanently shifted in their favor.

Merger Activity

Chief Executive Officer Dave Potts is credited with reviving Morrison in recent years, which historically lagged behind the other large grocery chains in Britain. The grocer owns most of its supermarkets, giving it a valuable property portfolio, as well as a number of abattoirs and other manufacturing facilities to produce much of the food it sells.

Still, the potential bid comes at a challenging time for Morrison’s board, which suffered a stinging rebuke from shareholders over executive pay last week. Just over 70% of investors voted against the proposal — in one of the largest protest votes ever against a company’s pay report. The awards will still be made because the vote wasn’t binding.

Silchester International Investors, one of Britain’s biggest boutique asset managers, is the largest shareholder in Morrison with a 15% stake.

Sky News reported earlier that CD&R was evaluating a bid, citing people familiar with the matter who it didn’t identify.

The U.S. firm has until July 17 to make a formal bid under British takeover rules, CD&R said in a statement. Morrison shareholders would receive the second-half dividend of 5.11 a share under CD&R’s plan.

Britain’s grocery sector has been beset with merger activity in the last few years driven by a highly competitive market. Grocery stores are grappling with the growth in online shopping as well as challenges from German discounters Aldi and Lidl. Britain’s third-largest grocer, Asda Group Ltd., was taken over by TDR Capital and the Issa brothers in a 6.5 billion-pound deal. Walmart Inc., the U.S. retailer which owned Asda since 1999, retains a minority stake.

The Asda transaction came two years after regulators blocked Walmart’s a previous attempt to sell the business to the U.K. grocer’s bigger rival, Sainsbury. Elsewhere in Europe, Carrefour SA also faced a short-lived takeover attempt by Canada’s Alimentation Couche-Tard Inc. That effort was torpedoed by the French government which took exception to one of the country’s biggest supermarkets falling into foreign hands.

Retail Links

CD&R is no stranger to U.K. retail and works closely with senior adviser Terry Leahy, the former CEO of Tesco. Most of Morrison’s top management team are former Tesco employees and worked with Leahy when he was aggressively expanding into Asia and the U.S.

Potts spent most of his working life at Tesco, but left after he failed to get the top job when Leahy resigned. Other Morrison alumni of Britain’s largest supermarket chain include Chairman Andy Higginson, Chief Operating Officer Trevor Strain and Chief Financial Officer Michael Gleeson.

CD&R in May announced an agreement to buy UDG Healthcare Plc for 2.61 billion pounds in cash, the latest in a flurry of pharmaceutical deals amid the pandemic. The firm’s past European investments also include U.K. discount retailer B&M European Value Retail SA, which went public 2014, French home-goods retailer BUT and U.K. gas station and convenience store chain Motor Fuel Group.

The private equity firm, which focuses on targets in North America and Europe, manages more than $35 billion of investments in 100 companies, according to its website.

(Updates with Morrison statement.)

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