A trio of private investment groups led by Fortress, owned by SoftBank, have reached a £ 9.5 billion deal to acquire Wm Morrison, Britain’s fourth-largest supermarket chain.
Under the terms of a deal unveiled Saturday morning, Fortress, Canadian pension fund CPPIB and a unit of Koch Industries will pay 252p per share as well as a special 2p dividend to buy the grocer. It values Morrisons’ equity at £ 6.3bn before the inclusion of £ 3.2bn in net debt.
The deal comes two weeks after the Bradford-based group said it rejected an unsolicited 230 pence-per-share approach from private equity group Clayton, Dubilier & Rice.
The Fortress-led offering values Morrisons shares at a 42% premium over their price before the company discloses CD&R’s approach.
The deal would be the largest UK private equity buyout since KKR bought Boots in 2007 and comes as buyout groups have announced at least 12 UK listed companies since the start of this year, as the Brexit and the pandemic weigh on stock prices.
Andrew Higginson, Chairman of Morrisons, said: “We have taken a very careful look at Fortress’s approach, its plans for the company and its overall suitability as the owner of a single UK manufacturer and trader with over 110,000 colleagues. and an important role in UK food production. and agriculture.
He added: “It is clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons.”
As part of the deal, investors set out a series of commitments, including plans to keep the grocer’s headquarters in Bradford. The group said it would protect pensions and were “fully in favor” of the supermarket’s agreement to pay all staff at least £ 10 an hour.
Fortress has said it “does not plan” to “material” leaseback the Morrisons stores. Morrisons owns 85% of its 497 stores and also has one of the UK’s largest food manufacturing companies.
The Fortress Group said it would assess options for the future of Morrisons gas stations within six months of finalizing a deal. During this period, he would also assess potential acquisitions and review Morrisons’ long-term plans for its real estate portfolio.
Fortress has said it does not plan to make any “significant” sale and leasebacks of Morrisons stores. Morrisons owns 85% of its 497 stores and also has one of the UK’s largest food manufacturing companies.
The new owners would look at “incentive structures,” they said.
The Fortress-led group made a total of five approaches for Morrisons, starting May 4 when it offered 220 pence a share, people with direct knowledge of the matter said.
New York-based Fortress had been considering an approach with Morrisons since late last year, people said. He has yet to do any such large UK deals, but he looks to the country at a time when Brexit and the pandemic have hit stock prices, leaving many listed companies in the UK trade at lower multiples than the United States.
The bidders are putting up more than £ 3 billion in equity to fund the deal, about half of which comes from Fortress and the rest is split between the CPPIB and Koch, the people said. The Office invests through its credit division.
The deal will be funded by debt of £ 5.75 billion underwritten by HSBC and the Royal Bank of Canada.
Fortress is owned by Japanese firm SoftBank, which acquired the company in a $ 3.3 billion deal in 2017, making it an unusual asset in the tech investor’s portfolio.
Founded in 1998 by a trio of men including Wesley Edens, Fortress manages approximately $ 53.1 billion in assets and is best known for its work in distressed credit and investment situations.
Fortress highlighted its experience of investing in US supermarkets Albertsons and Fresh & Easy and service station operators United Pacific, Alta Convenience and Circle K.
Fortress bought the retail stores of UK wine retailer Majestic Wine for £ 95million in 2019.
Rival CD&R had previously been given a July 17 deadline to either make a firm offer for Morrisons or withdraw. Now that the board has backed an alternative bid, it’s unclear whether CD&R will attempt to disrupt the process with a counter-offer during what will be a months-long process to finalize the Fortress deal.
Cowen general manager Mark Kelly said in a note on Saturday that Fortress’s offer may not be the end of the game.
“There have been recent calls from shareholders to consider prices like 270p to be appropriate,” he said.
“It is likely that the Morrisons board saw that there was a lack of tension in the absence of competition – and therefore once a [private equity] bidder has placed a bid within an acceptable range, it is an appropriate tactic to accept this, make it public and hope for a competitive bid to ensue.
Ross Hindle, analyst at Third Bridge, said it would be revealing to see how Amazon reacted to the news. “They are a key partner of Morrison, with a lot of speculation that they could make an offer,” he said.
Morrisons’ main shareholder is Silchester, a low-key London-based asset manager with a 15 percent stake. The company did not immediately comment on the Fortress offer.
The deal would require the approval of 75 percent of Morrisons shareholders under a takeover mechanism known as the scheme of arrangement.
Morrisons management team, led by chief executive Dave Potts, have received kudos for trying to turn the company around since 2015, but have failed to convince investors.
Before the CD&R approach was revealed, stocks were trading below what they were when Potts took over.
In the year to the end of January Morrisons reported sales of £ 17.5bn and net profit of £ 96m. The grocer faced a shareholder revolt over his compensation arrangements in June.
Additional reporting by Attracta Mooney