Wm Morrison board accepts GBP 7bn CD&R offer

Harriet Matthews
20 August 2021

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UK supermarket Wm Morrison has accepted an increased GBP 7bn offer from Clayton Dubilier & Rice (CD&R); if the deal succeeds, it will be the largest PE-backed take-private in the UK since Boots' GBP 11.1bn delisting in 2007.

The management board has unanimously accepted the offer. Shareholders are expected to vote on the deal in October.

The announcement follows a bidding war between CD&R and Fortress Capital, which was engaging in the process via its Oppidum Bidco vehicle. The consortium included GIC, which joined the Bidco in July 2021. Apollo Global Management had also been in talks to join the bid.

Fortress said in a statement that it is considering its options and advised Morrisons' shareholders not to take any action at this stage. The consortium is still able to return with a higher offer, according to UK takeover law.

According to a statement, the GP has partnered CPP Investments (the investment arm of the Canada Pension Plan Investment Board), KREI and GIC (via its subsidiary Cambourne Life Investments). The Bidco is advised by Slaughter and May.

Wm Morrison's board recommended the Fortress consortium's 254 pence per share offer on 3 July, corresponding to GBP 6.3bn, as reported. However, shareholder JO Hambro said at the end of July that it did not intend to accept this offer, stating that a bid of approximately 270p per share would justify entering talks with a potential acquirer.

Fortress and its consortium subsequently increased their offer to 274 pence per share, corresponding to a valuation of GBP 6.7bn.
CD&R originally made a bid for the supermarket chain for 230 pence per share, corresponding to GBP 5.5bn, but this was rejected in June 2021. The GP requested more time to consider its options in early August following Fortress's increased offer, as reported.

Morrisons therefore adjourned its court and general meetings that would have been required in order to implement Fortress's offer, although its board was continuing to recommend Fortress's offer at the time.

CD&R's offer now stands at 285 pence per share. Including debt, the GBP 7bn offer will amount to a GBP 9.7bn enterprise value.

CD&R held a final close for its latest buyout vehicle, Clayton Dubilier & Rice Fund XI, in May 2020 on USD 10bn. The fund invests globally and its investments to date include plumbing merchant Wolseley UK, which the GP acquired from listed plumbing and heating products distributor Ferguson for GBP 308m in January 2021.

Founded in 1899 and headquartered in Bradford, Morrisons is a UK-based supermarket chain with approximately 500 stores and 110,000 employees. It is the fourth-largest supermarket in the UK behind Tesco, Sainsbury's and Asda.

The deal that remains the largest PE-backed take-private in the UK to date is KKR's take-private deal for pharmaceutical and beauty products retailer Boots in 2007; the GBP 11.1bn offer was joined by AlpInvest and Ardian. The takeover battle saw offers from Terra Firma and the Wellcome Trust, with KKR agreeing to invest GBP 418m into Boots' pension scheme over 10 years and put in place a security package as part of the deal.

In the past 10 years, 58 PE-backed take-privates totalling almost GBP 44.6bn have been completed in the UK market, according to Unquote Data. By both volume and value, 2019 was the most active year for take-privates during this period, with 11 deals amounting to GBP 19.4bn.

The largest take-private completed during this period came in October 2019: Blackstone and Canada Pension Plan Investment Board's (CPPIB) GBP 5.9bn acquisition of UK-based theme park operator Merlin Entertainments, alongside Kirkbi Invest, the investment arm of Lego.

By volume, the industrial sector has seen the largest portfolio of take-privates over the past 10 years, with 28% of deals. The consumer sector has seen 20% of such deals, while 24% were completed for technology sector companies.

More recent take-privates include Advent International's GBP 4.1bn acquisition of defence and aerospace business Cobham. The deal drew significant public scrutiny around foreign takeover rules for companies that are crucial to national security. In December 2020, Toscafund and Penta Capital acquired broadband provider TalkTalk at a GBP 1.8bn valuation.