Wm Morrison PLC (LON:MRW) has turned down a £5.5bn takeover approach from US private equity firm Clayton, Dubilier & Rice.
An approach was confirmed this weekend and followed an initial contact on (Thursday) 17 June.
In a statement, Morrisons said: "The board of Morrisons evaluated the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects.
"Accordingly, the board rejected the conditional proposal on 17 June 2021."
The supermarket said the offer was priced at 230p per share, valuing it around £5.5bn, and compared to a closing price on Friday of 178.5p.
Morrisons may be regaining ground, analysts say
CD&R counts former Tesco boss Sir Terry Leahy as a consultant and has already been spending heavily this year with a £2.8bn deal for UDG Healthcare, £308mln for Wolesley Plumbing and a joint US$5.5bn deal for US tech firm Cloudera.
Morrisons has previously been tipped as a possible takeover target for online giant Amazon and some observers expect the CD&R move to flush out other interested parties.
The group is the UK’s fourth-largest grocery chain with around 10% of the UK grocery market and employs 110,000 staff.
Tesco and Sainsbury’s are the largest, with Asda, which has just been taken over by the Issa brothers and private equity group TDR, in third.
Under takeover rules CD&R has until 17 July to make a formal offer.
Its approach comes just days after Morrisons suffered one of the biggest investor revolts seen yet in the UK with almost 70% of shareholders voting against a management bonus scheme that stripped out additional Coronavirus costs.
The surprise bid could give the entire sector a boost when the market opens, according to analysts at CMC Markets, "given the surprising underperformance seen so far this year".
"All three, Morrison, Sainsbury (LON:SBRY) and Tesco (LON:TSCO) have seen costs rise as a result of COVID, and while in the case of Morrison’s profits halved last year, like-for-like sales growth remained resilient in its first quarter, rising 2.7%, despite the tough comparatives of last year, when sales surged for all three as people stockpiled all manner of staples," commented chief market analyst Michael Hewson.
"It has been battling with a falling market share, now down at 10%, from 10.6% five years ago, a trend that has been reflected in this year’s share price performance, unchanged year to date, although it is better than Tesco’s share price which is down over 20%, and Sainsbury which is up over 15%."
"When compared to the likes of the food retail sector in the US the share price performance of the entire sector has been woeful despite being profitable and having dividend yields of around 4%. Maybe that is about to change?," he concluded.
In fact, shares in Morrisons soared 31% to 234.55p at the opening bell, while Sainsbury's advanced 3% to 269.04p and Tesco rose 2% to 225.75p.
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