Concern mounts over private equity interest in grocers following failed Morrisons bid

Following the shock £5.5bn takeover bid for the UK’s fourth largest grocer Morrisons by New York-based private equity firm Clayton Dubilier & Rice (CD&R) yesterday, both the shopworkers’ union and Labour MP Seema Malhotra have called on greater oversight to stop private equity owners stripping grocers’ assets and slashing jobs in the process. 

Usdaw general secretary Paddy Lillis said: “Supermarkets have played a crucial role during the pandemic and retail staff have rightly been recognised as key workers at the heart of our communities providing the essential service of keeping the nation fed.

“These are strategically important businesses that need stable ownership that is focussed on delivering good service to customers, investment to grow the business and creating decent secure jobs. So there needs to be more rigorous testing of corporate governance to ensure sustainable ownership.

“Retail was in crisis before the pandemic and we were calling for a comprehensive industrial strategy to be drawn up by the government, employers and Usdaw in partnership.

“Coronavirus has heightened many of the issues of concern and we are now desperate for a recovery plan, instead of the sticking plasters currently on offer, which are too short term and do not give businesses the confidence they need to invest for the future.”

Labour’s shadow minister for business and consumers Seema Malhotra MP said: “Britain’s supermarkets stepped up to serve communities during the pandemic. Our supermarkets that play a role at the heart of our communities need owners that put the long-term interests of the business and its employees first.

“When Debenhams went bust we saw private equity firms walk away while employees lost their jobs and staff who have paid into the pension scheme were left out of pocket.

“Too often dodgy private equity firms load the companies with debt and leave while pocketing the dividends. This has to end.”

The calls come amid growing speculation that CD&R’s unsolicited and rebuffed bid for Morrisons is only the beginning of foreign investment in the UK grocery market. 

Legal & General, a top 10 Morrisons shareholder, blasted the offer in the Financial Times warning that CD&R “would not be adding any genuine value” to the company with its proposed purchase.

Following Morrisons’ announcement it had rebuffed the bid, the grocer’s share price closed nearly 28% higher. However, share price upticks were also seen at Tesco and Sainsbury’s, which closed 1.7% and 3.8% higher respectively.  

CD&R have until July 17 to make a firm offer for Morrisons and experts expect it will make a second and larger bid. There is also speculation that should CD&R’s interest firm up, it will smoke out other private equity firms such as Apollo, Lone Star or even a bid from Amazon, which has an existing wholesale relationship with Morrisons. 

Most recently EG Group owners the Issa brothers and TDR Capital completed a £6.8bn acquisition of Asda from former parent company Walmart. Lone Star and Apollo both explored potential bids for Asda, and experts believe they will be keeping an eye on the Morrisons situation. 

Due to strong performances – both financially and strategically – throughout the coronavirus crisis, but comparatively weak share prices, analysts say that UK grocers generally are an attractive target for cash-rich investment firms. 

At Sainsbury’s billionaire Czech investor Daniel Kretinsky increased his stake in the business to 10% in April, with one analyst saying it would be “no great surprise” if the so-called ‘Czech Sphinx’ would look to take a majority stake in the UK’s second largest grocer. 

“Even Tesco, with its £18bn market valuation, is not too big to be subject to an offer,” said analysts Shore Capital in a note.