Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A shock takeover approach for Wm Morrison from private equity firm Clayton Dubilier & Rice has raised fears over possible job losses, and could prompt a bidding war for the UK’s fourth largest grocer.
Although Morrisons rejected CD&R’s £5.52bn possible cash offer, analysts believe the company will face further overtures – and that other potential buyers could enter the mix too.
Nick Bubb, an independent retail analyst, predicted:
“I suspect a [Morrisons] deal can be agreed at 250p-260p and after that the focus will increase on a potential breakup of Sainsbury and even Tesco, so it should be a lively day on the stock market.
I certainly wouldn’t want to be a hedge fund short of any of the big three.
We’ll get the City’s verdict when stock market trading begins at 8am.
Another analyst said that other supermarket chains could now be ‘in play’:
“The whole industry is in play now. It’s not unrealistic to say that there could not be a single quoted British supermarket left in the foreseeable future.”
The private equity industry have a reputation of swooping on undervalued businesses, loading them with debt, creating risks to jobs and pensions – and the wider economy – if things turn sour.
The Labour Party has expressed concerns that Morrisons – one of the supermarkets that kept the UK fed through the lockdown – could fall into private equity hands.
Seema Malhotra, the shadow minister for business and consumers, warned:
“Britain’s supermarkets stepped up to serve communities during the pandemic. 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.
“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.”
As well as employing around 120,000 staff and running almost 500 stores, Morrisons also has a significant food manufacturing businesses, including bakeries, abattoirs, fishing fleets and egg farms.
CD&R is likely to wait before taking its next step, to gauge investor and public reaction. It has 28 days to make a formal offer, or walk away.
Here’s my colleague Julia Kollewe’s story on the bid:
Also coming up today….
Financial markets feel edgy after tumbling on Friday, amid fears that rising inflation could force central banks to slow their unprecedented stimulus measures.
Asia-Pacific markets have fallen sharply, catching up with Friday’s losses in Europe and the US, which saw the FTSE 100’s worst day in a month and the Dow Jones’s Industrial Average’s worst week since last October.
Japan’s Nikkei has led the slump today, sliding around 3.3% in late trading, while South Korea’s KOSPI has dropped around 1%.
European markets are expected to open lower too.
Friday’s slide was partly fuelled by St. Louis Fed President James Bullard, who said America’s central bank had turned “more hawkish” to contain inflationary pressures.
The prospect of tighter monetary policy has hit the move into stocks likely to benefit from a global rebound and a jump in commodity prices, as Jeffrey Halley, senior market analyst, Asia Pacific, OANDA explains:
Federal Reserve official James Bullard became the proverbial bull in a China shop on Friday when he said that the Fed might need to raise rates in late 2022 instead of 2023. That sparked a run for the exit door for equity markets and commodities while the US Dollar powered higher.
The US yield curve continued to flatten as long-dated bond yields slumped, notably in the 20-year tenor.
The major casualty has been the global reflation/cyclical recovery trade.
- 11am BST: Germany’s Bundestag’s monthly report
- 1.30pm BST: Chicago Fed National Activity Index for May