Morrisons announces $9.54 takeover bid from Clayton, Dubilier & Rice

British supermarket Morrisons (LON: MRW) has announced a $9.54 billion takeover bid from US private equity group Clayton, Dubilier & Rice. With the agreement, the company dropped a recommendation of a lower bid from a Fortress Investment Group-led consortium.

Morrisons valued at £9.7 billion

The UK supermarket began as a butter and egg merchant in 1899. Morrisons said that CD&R’s offer was estimated at 285 pence per share, trumping the Softbank-owned Fortress-led consortium offer of around 272 pence per share. CD&R's offer values the supermarket chain at £9.7 billion, including debt. The supermarket chain's board plans to recommend the offer from CD&R unanimously.

The agreed bid-offer reflects a 60% premium to the company's share price in Mid-June when the takeover interest emerged. On Thursday, Morrisons' stock closed at 279.2 pence, indicating that investors were expecting a higher offer.

CD&R earlier bid of £5.52 rejected

On June 17, CD&R, whose senior adviser is ex-Tesco boss Terry Leahy, had a £5.52 billion proposal rejected by the supermarket chain. Morrisons' board subsequently recommended a £6.3 billion bid from Fortress that was raised following recommendations from major shareholders including Hambro, M&G, and Silchester, who pointed the need for more.

Most importantly, CD&R will maintain Morrisons' current management team headed by CEO David Potts. The US equity group said that there are no plans for leaseback transactions or material store sales. Chairman Andrew Higginson said:

It is important to note that Higginson, Potts, and Morrisons’ COO Trevor Strain worked at Tesco with Leahy. Leahy said:

CD&R to expand forecourts

Currently, Morrison owns around 339 fuel forecourts, and CD&R is keen on a partnership to develop the supermarket chain's convenience store and wholesale business portfolio. CD&R has investments, including Motor Fuel Group operating 918 fuel forecourts across the UK. Surprisingly the forecourt overlap is likely to face regulatory scrutiny from UK's competition regulator.

It is vital to note that as per the UK takeover regulations, Fortress can still come back with a better offer exceeding that of CD&R. Notably, Fortress said that it was considering its options urging shareholders not to take any action.