UK grocers get a boost from CD&R’s offer for WM Morrison

Published on

Supermarket sweep as offer of the week for WM Morrison sends shares higher

Get Our Activist Investing Case Study!

Get The Full Activist Investing Study In PDF

Q1 2021 hedge fund letters, conferences and more

  • WM Morrison Supermarkets PLC (LON:MRW) +32%
  • J Sainsbury plc (LON:SBRY) +3.7%
  • Marks and Spencer Group Plc (LON:MKS) +2.4%
  • Tesco PLC (LON:TSCO) +1.7%

WM Morrison's Share Price Rises

"It may be Amazon Prime day, but competition from the king of e-commerce hasn’t upset the shopping cart for UK grocers. Instead, the offer of the week for WM Morrison has led to price rises across the sector, with the grocer rising 32% and Sainsbury’s, Tesco and Marks and Spencer also seeing their shares climb higher as speculation swirls about who might be next in line to bid for a slice of the supermarket pie.

WM Morrison has rejected the initial takeover bid from Clayton, Dubilier & Rice, but there could be others. The rejected offer valued Morrison shares at a 29% premium to their closing price before the bid. The US private equity firm could come back with a better offer, or it could spur others to jump on the conveyor belt and make bids of their own. The expectation of further interest in the sector has led to a spurt of optimism about prospects for the grocers who have been capitalising on the shift to e-commerce.

Amazon May Be The Next To Approach Morrison

Morrison’s is bounding ahead with digital sales, which were up by 113% last quarter. It’s being eyed up for takeover because, despite this expansion, its online business is smaller than its rivals which leaves more room for exceptional growth. There is speculation that Amazon could be the next suitor to come forward as Morrison’s is already a prince in the company’s e-commerce empire, selling ranges via Prime and via the Amazon Fresh bricks and mortar store in West London. Morrison’s owns much of its store estate, which may also been seen as attractive to potential bidders who may see that as an area to cut short term costs through sale, then leasing deals.

The grocery market might look hot right now, given the surge in online sales over the past year, but there are already indications it’s begun to cool. There was a 5.7% fall in retail food sales in May, as consumers bought fewer groceries and ate out in restaurants once more, as restrictions eased. As shoppers fill fewer baskets, there is likely to be further competition on price which could eat into margins at a time when continued investment is needed to expand online capacity. So, the current supermarket sweep could turn into a disappointing bun fight as grocers battle to win market share."

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

About Hargreaves Lansdown

Over 1.6 million clients trust us with £132.9 billion (as at 30 April 2021), making us the UK’s largest digital wealth management service. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!