Shares in Morrisons surged more than 30% on Monday, after the supermarket giant rebuffed a £5.5bn takeover offer from a US private equity firm, potentially sparking a bidding war.
Investor demand was spurred by news over the weekend that Morrisons, which employs about 120,000 people in the UK, had become a takeover target, making the Bradford-based chain the top FTSE 250 riser on Monday morning, the first opportunity to trade shares after the approach was made public.
Shares rose in the rest of the sector, as traders bet that other supermarket groups could become targets of private equity interest. Sainsbury’s and Ocado were up 3.5%, making them the top FTSE 100 risers. Tesco shares rose 1.3% and Marks & Spencer was up 3%.
Morrisons said on Saturday it had rejected a preliminary bid by the US buyout firm Clayton, Dubilier & Rice because it “significantly undervalued Morrisons and its future prospects”. CD&R had offered to pay 230p a share in cash. Morrisons’ share price closed at 178.45p on Friday, but rose to 235p on Monday morning, valuing the company at £5.7bn.
The private equity firm has until mid-July to make another offer or walk away, meaning it could table a more lucrative offer to convince Morrisons bosses to recommend that investors sell the business. CD&R counts Sir Terry Leahy, the former Tesco chief executive, as a senior adviser.
Analysts speculate that other bidders, including rival private equity firms or the massive retailer Amazon, could put their hat in the ring and spark a bidding war for the UK’s fourth largest grocer.
Michael Hewson, the chief market analyst at CMC Markets UK, said the surprise Morrisons bid would give the entire sector a boost. Supermarket share prices have struggled despite the companies’ success throughout the pandemic.
“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 said.
Labour has raised concerns over the prospect of another private equity takeover, saying firms tend to swoop in and pocket the dividends, while cutting jobs and leaving companies loaded with debt. Reports suggest the Morrisons board would seek assurances from any potential buyers that its workers, manufacturing operations and pensions scheme would be protected.