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

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UK grocers get a boost from CD&R’s offer for WM Morrison
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Supermarket sweep as offer of the week for WM Morrison sends shares higher

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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.

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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


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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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