Private equity's supermarket sweep
The private-equity battle for Wm Morrison is intensifying now that it has accepted a bid from Fortress Investment. Matthew Partridge reports


“You wait ages for a bidder to emerge for one of the UK’s big supermarket chains, then three turn up at once”, says Dominic O’Connell on the BBC. Having recently turned down a takeover offer from US private-equity firm Clayton, Dubillier & Rice (CDR), Wm Morrison has just “wrong-footed” the market by announcing a deal with a group of investors led by Fortress Investment. At 254p a share it represents a 42% premium to the supermarket’s pre-bid share price. And a third private-equity group, Apollo, is “considering its own offer”.
The Fortress bid is certainly convenient for Wm Morrison’s board, say Nils Pratley in The Guardian. Not only did it get a better offer than CDR’s, but it also gives it the opportunity to claim the moral high ground by selling to an owner they claim has a “long-term approach to investing”. But Fortress is “not running a charity”, while its commitments to good behaviour, including “industry-beating pay rates for staff”, are “statements of intention” rather than legally binding “post-offer undertakings”.
Don’t count on principle overriding profits, says Aimee Donnellan on Breakingviews. Whatever Wm Morrison’s board decides, there’s always the possibility that a new investor could go behind their backs by mounting a hostile takeover (bypassing the board and appealing directly to shareholders). Back-of-the-envelope calculations suggest that a bidder could offer 300p and still make a “decent return” if they were “prepared to ignore some of the employee-friendly promises made by Fortress”. At that price, institutional investors may swallow their complaints that private-equity firms “fundamentally undervalue British companies and have little regard for the long-term health of the businesses they buy”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Whatever the outcome of the battle for Morrisons, the “supermarket sweep” is likely to continue, says Sam Chambers in The Sunday Times. Private-equity firms who lose out on this deal may target other supermarkets, attracted by their “stubbornly low share prices”, especially when set against “healthy cash generation and big property portfolios”. Technology companies, especially Amazon, could also join in the fun. In 2017 Amazon spent $13.7bn on US retailer Whole Foods and made an approach to Waitrose.
Which supermarket is next?
Of the remaining supermarkets, Sainsbury’s is most likely to be the next subject of a bidding war, says Laura Onita in The Daily Telegraph. Its assets are “underpriced and highly cash generative”, while it “still has a lot of fat to burn”, which gives any new investor plenty of room to increase profits further through cost-cutting. Billionaire investor Daniel Kretinsky, known as the “Czech Sphinx”, recently acquired a large shareholding in Sainsbury’s. While Kretinsky claims the deal is part of a strategy “to acquire minority stakes in companies that sell food”, the move has sparked speculation that it could be a prelude to a bid to take the grocer private.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Four income funds to add to your ISA
Adding one of these four income funds to your stocks and shares ISA ahead of tax year end could pay dividends
By Dan McEvoy Published
-
Are regular savings accounts worth it?
A 7% interest rate is eye-catching, but how much can you save in a regular saver account and how does the interest rate work exactly?
By Ruth Emery Published
-
Three top-notch Taiwanese companies cashing in on the advent of AI
Opinion Eric Chan, investment director and co-manager of the Aberdeen Asian Income Fund, highlights three potential Taiwanese winners in the technology industry
By Eric Chan Published
-
Weight-loss drugs could revolutionise the economy – the investments to buy now
The new generation of weight-loss drugs are a boon for the overweight, but they also promise to change our relationship with food and revolutionise the economy
By Dr Matthew Partridge Published
-
Find tomorrow’s Asian giants while they are still smaller companies
Opinion Nitin Bajaj, portfolio manager of the Fidelity Asian Values trust, picks three Asian companies to invest in.
By Nitin Bajaj Published
-
AI will maintain Moody’s market lead, says Stephen Connolly
Opinion Veteran data provider Moody's has adapted well to the modern world, and is one of Warren Buffett’s longest-held investments
By Stephen Connolly Published
-
Is BlackRock World Mining gearing for a recovery?
Opinion After a frustrating year, BlackRock World Mining is positioned for growth and to capitalise on the sector's recovery
By Rupert Hargreaves Published
-
Should you limit exposure to US tech stocks?
An end to the AI boom would shake both US funds and global trackers. Here’s one way to trim exposure to US tech stocks
By Cris Sholto Heaton Published
-
The mystery of America’s gold and why an audit matters
How much gold does the US actually have? Dominic Frisby explains why it matters
By Dominic Frisby Published
-
Art vs AI: artists’ uprising takes on the bots
AI performs impressively, but it’s all based on human work that was taken without payment. The government thinks this is fine. Copyright holders beg to differ
By Simon Wilson Published