Clayton, Dubilier & Rice’s (CD&R) 230p proposal was rejected two weeks ago, but it could generate strong returns at a 275p valuation, analysts at Berenberg said.
CD&R’s takeover approach for Morrisons has many parallels with EG Group’s recent acquisition of UK grocer Asda, they noted, such as the freehold property value extraction and potential synergies with the forecourt operations.
In fact, CD&R owns MFG, the UK’s leading forecourt operator with over 900 petrol stations.
The private equity group could see a return of £360mln for the distribution assets, of £1.3bn in-store sale and leasebacks and an £837mln sale of the Morrisons forecourt operation to MFG, leading to £45mln of profit synergies.
“While it is possible that another PE company could enter the fray, we believe that CD&R would likely be the highest bidder given the potential synergies with MFG,” Berenberg said.
And although the grocer signalled that maintaining the status quo from a strategy perspective was a key reason for accepting Fortress’s offer, the price will be “the kingmaker”.
“While another firm may offer a higher price, if management disagrees with the strategy approach then this could create a challenged relationship with Morrisons’ management,” analysts said.
“Potential buyers will have to be cognisant of this if they want to keep the existing management team. However, current shareholders will understandably want the best price.”
The broker added that private equity ownership of both Asda and Morrisons would “make the competitive environment more rational, which is positive for the UK grocery space”.
Shares in Morrisons were trading at 267.25p on Wednesday afternoon, prompting a downgrade to ‘hold’ from ‘buy’ as they are higher than Fortress’s offer price.