WM Morrison Surges 11% As Another Buyer Puts The Grocer On Its Shopping List

Published on
  • WM Morrison Supermarkets PLC (LON:MRW) up 11.5%.
  • J Sainsbury plc (LON:SBRY) up 1.5%.
  • Marks and Spencer Group Plc (LON:MKS) up 1.5%.
  • Tesco PLC (LON:TSCO) up 1%.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2021 hedge fund letters, conferences and more

WM Morrison Stock Surges

"With yet another private equity buyer putting WM Morrison at the top of their shopping list, shares surged by 11% in early trading as investors speculate about further bids being put on the forward.

WM Morrison’s board has recommended shareholders accept the £6.3 billion takeover bid from the Fortress backed consortium, so it’s right at the front of the queue, ready to pay. But now Apollo Global Management is heading up the aisle, confirming its interest for Morrisons, although it hasn’t yet made a formal bid. Initial bidders Clayton, Dubilier & Rice, may still come back to the tills to make a better offer, after their first approach was rebuffed.

With a trio of hungry firms circling, it shows there is a big appetite for a bite of the UK supermarket sector. WM Morrison is seen as a bargain compared to overseas peers, with its deep integrated supply chain and the fact that it owns much of its store estate. Morrisons is bounding ahead with digital sales, which were up by 113% last quarter. The company is already a prince in Amazon’s e-commerce empire, selling ranges via Prime and via the Amazon Fresh bricks and mortar store in West London, which gives it added reach. The tentacles of WM Morrison expand across multiply supply chains where innovative products are in development. As the UK’s second largest food manufacturer, a huge number of farmers and producers are reliant on the grocer, not to mention the staff employed at its stores and factories, so any private equity bid is being met with suspicion by unions, fretful that parts of this support network could be dismantled. Already Morrisons has moved to try and assuage concerns, by reportedly writing to some members of parliament saying that Fortress will continue to place a very significant emphasis on the wider responsibilities of ownership. There certainly will be relief that Fortress has no plans yet to strip Morrisons of its assets – and sell off chunks of its store estate, which was one of the initial main concerns.

J Sainsbury Shares Also Surge

Shares in J Sainsbury also moved a little higher as speculation swirled about who might be next in line to bid for a slice of the supermarket pie. Sainsbury’s is considered a possible target, given that billionaire Daniel Kretinsky, the owner of Vesa Equity Investments has been building his stake in the company. J Sainsbury is aiming to hold onto market share through a price match promise with the low cost rival Aldi, as shoppers swap virtual baskets for physical trollies with the easing of restrictions. Marks and Spencer and Tesco also appear to be benefitting from this surge of interest in the sector, with shares up by more than 1% in early trading.

Although grocery market might look hot right now, given the growth in online sales over the past year, there are already indications it’s begun to cool a little. There was a 5.7% fall in retail food sales in May in the UK according to the ONS, as consumers bought fewer groceries and ate out in restaurants once more, as restrictions eased, and further competition on price is likely to eat into margins. So instead of turning into a bun fight M&A activity is likely to be more of a dignified browse across other potential targets."

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.