US private equity rivals join forces in Morrisons chase dashing investors’ hopes for a bidding war
Investors hoping for a bidding war over Morrisons were left disappointed yesterday as a US private equity firm withdrew from the race and joined a rival.
Apollo Global Management ruled out making an offer for the grocer on its own and revealed it is in talks to join the existing £6.3billion bid led by Fortress Investment Group.
The firm’s previous announcement that it was considering an approach helped to drive Morrisons shares to a high of 267.8p this month, as investors anticipated a showdown.
Apollo Global Management revealed it is in talks to join Fortress Investment Group’s £6.3bn bid for Morrisons – which is led by chief executive David Potts (pictured)
But analysts said Apollo’s latest move made it more likely that the Fortress bid would now succeed. Morrisons shares dipped 0.3 per cent, or 0.9p, to 261.1p as investors reacted to the news yesterday.
But that remained above the 254p-per-share offer put forward by Fortress and its consortium – suggesting shareholders believe a higher offer may still materialise.
Fellow US private equity firm Clayton, Dubilier & Rice, which had its £5.5billion offer rejected last month, is pondering a second approach, while analysts believe Amazon is another potential contender.
But Apollo yesterday confirmed it was in ‘the preliminary stages of discussions, which may result in Apollo forming part of the investment group led by Fortress’.
A spokesman for the buyout firm said: ‘As a consequence of these discussions, Apollo does not intend to make an offer for Morrisons other than as part of the Fortress offer.’
Apollo also pledged support for commitments made by Fortress on jobs, pensions and the supply chain at Morrisons – which is led by chief executive David Potts (pictured) – including a promise not to sell ‘material’ amounts of property – although these are not legally binding.
Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: ‘Apollo is laying down its weapons and potentially joining forces with the Fortress-led syndicate.
From a shareholder perspective this is disappointing. There could be other raised arms in the bidding hall but for now, Morrisons is back to courting a single suitor.’
However, one top 20 shareholder yesterday signalled the takeover battle was far from over. ‘My view is still that 254p significantly undervalues Morrisons,’ the investor said.
‘CD&R are currently evaluating making another offer. Morrisons share price has hardly moved today and still stands 10p above the Fortress offer.’
Still, Apollo’s move means attention will now turn to whether top Morrisons investors – many of whom have remained silent as bid speculation has swirled – are set to support the Fortress takeover.
The sale is still far from a done deal, requiring 75 per cent approval in a shareholder vote.
Number one shareholder Silchester, which owns 15.2 per cent of Morrisons, has yet to declare a position and is expected to play the role of kingmaker.
Together with second-biggest shareholder Blackrock, which holds 9.9 per cent and is also undeclared, Silchester wields enough votes to block the Fortress deal.
And others have criticised the takeover, with MPs across the political spectrum calling on the Government to intervene and scrutinise its impact on jobs and the supply chain.
Top ten investor Legal & General Investment Management urged the Morrisons board to publish more information about its assets and warned against a takeover ‘for the wrong reasons’.
Andrew Koch, senior fund manager at L&G, said the bidding process for Morrisons had led to ‘more questions than answers’ and raised concerns that the supermarket’s assets could be sold by its private equity buyers in a bid to boost profits.
Dbay sweetens its offer for Telit
Private equity firm Dbay has ramped up its offer for Telit Communications after shareholders threatened to derail the deal.
Dbay had initially agreed with Telit’s board to pay 220p per share for the technology company, valuing it at £306.9million.
But the Isle of Man-based private equity firm announced yesterday that it was increasing its offer to 229.5p, taking the total to £320million.
The move was driven by discontent among shareholders, especially hedge funds which had piled in after Dbay’s initial offer in the hope of squeezing more money out of the deal.