Wm Morrison Supermarkets PLC (LON:MRW) soared on Monday morning as investors may be anticipating a bidding war.
The supermarket giant recently rejected the unsolicited £5.5bn takeover approach from US private equity firm Clayton, Dubilier & Rice on the grounds that it “significantly undervalued” the business.
It was priced at 230p per share, which is now below the current level following this morning’s rally. Under takeover rules CD&R has until 17 July to make a formal offer.
“CD&R aren’t going away and we suspect a deal can be done in the 250p-260p area,” said independent retail analyst Nick Bubb.
“If Amazon was ever going to bid for its UK wholesale partner Morrisons, to build a bigger physical presence in the UK grocery market, it’s hard to avoid the view that it would have done it by now, but it’s possible that Amazon will be prompted by the CD&R approach to gate-crash the party and come in with an offer themselves.”
A potential private buyout is concerning Labour as previous deals of this kind have led to job cuts.
“Our supermarkets that play a role at the heart of our communities need owners that put the long-term interests of the business and its employees first,” Seema Malhotra, shadow minister for business and consumers, was reported as saying by The Times.
“When Debenhams went bust we saw private equity firms walk away while employees lost their jobs and staff who have paid into the pension scheme were left out of pocket. Too often dodgy private equity firms load the companies with debt and leave while pocketing the dividends. This has to end.”
Morrisons is one of the largest private-sector employers in the UK with 118,000 staff at almost 500 stores, so the government may be under pressure to intervene in a potential deal to protect jobs.
The stock has traded sideways during the past year, despite supermarkets benefitted from COVID-19 lockdowns, as investors have been concerned about the hyper-competitiveness of the market.
However, some analysts say the deals with Amazon and McColl’s, as well as the online service, make for a strategy that may have looked enticing for the private bidders.
“Morrisons is a slam-dunk. But you can see the value case for the shares and that must be the key attraction for CD&R,” said AJ Bell investment director Russ Mould.
“The issue now is how the big shareholders respond and whether they – and the Morrisons board – feel they can squeeze out a higher bid or feel sufficiently confident in Morrisons’ strategy and long-term competitive position to spurn the offer altogether.”
Shares climbed 31% to 234.65p on Monday morning.