Wm Morrison – Bidding War Cools Down

Wm Morrison – Bidding War Cools Down
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Apollo Global Management has confirmed it no longer intends to make an individual bid for Wm Morrison Supermarkets PLC (LON:MRW). Instead it’s in discussions with the syndicate led by Fortress, to become part of the investment group which has previously made a cash offer.

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The existing Fortress offer stands at 254p cash per share. That’s about a 42% premium to the closing price on 18 June, and values the company at around £6.3bn. The bid is being led by US private equity firm Fortress, with funding currently backed by the Canada Pension Plan and Koch Real Estate Investments.

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Morrison’s directors intend to unanimously recommend the offer, but the deal is still subject to shareholder approval. If successful, the deal should complete in the final three months of 2021. Fortress highlighted it had no plans to sell any Morrison stores, and “will support Morrisons and its employees in executing management's existing strategy”.

The shares were broadly flat following the announcement.

Wm Morrison Is Back To Courting A Single Suitor

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown commented:

“Apollo is laying down its weapons and potentially joining forces with the Fortress-led syndicate. From a shareholder perspective this is disappointing, because it takes the heat out of a potential bidding war, meaning the cash offer already on the table is less likely to get pushed upwards. Fortress’ assessment of Morrisons valued the grocer at around £6.3bn, and represented a 42% premium to the share price before deal making began. If Apollo can get in on the deal at the current lower price, why wouldn’t it? Increasing private equity activity in London in recent months means there could be other raised arms in the bidding hall, but for now, Morrisons is back to courting a single suitor.

Morrisons is a mixed bag of challenges and opportunities. Its online business is smaller than rivals, meaning COVID hit particularly hard. As more of a value option, it’s also more at risk from competition from the German discounters. The flipside to that is that the dented share price caused by COVID woes made the group a more attractive takeover target. Plus, a smaller online business also means there’s a bigger growth opportunity compared to more mature operations. The final string to its bow is the substantial property portfolio, with Morrisons owning rather than leasing the majority of its sites. That’s a very attractive asset hoard and makes it tempting for potential buyers, who could consider leveraging the estate and spinning off the existing Wholesale business.”

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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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