Fortress Investment Group, which had a £6.3 billion (€7.35 billion) offer for Morrisons accepted last weekend, has the pedigree to continue the success of the UK retailer, a leading analyst has said.
Describing the agreed deal as a "good deal for both sides", Chris Elliott, head of market insights at Edge by Ascential, said that the US-based investment firm, which is owned by SoftBank, "has a track record of supporting the grocery industry as it invested in the US in Albertsons, A&P and Circle K. Closer to home, it also bought Majestic Wines at the end of 2019, bringing back former managing director John Colley to rebuild the retailer.
"So, there is plenty of evidence to suggest that Fortress is committed to the long-term success of Morrisons."
Importance Of Values
With Apollo Global Management likely lining up a counter offer, not to mention the possibility of a further move from Clayton, Dubilier & Rice, Morrisons should make sure that any prospective new owner's values align with those of the Bradford-based retailer.
"A danger for Morrisons would be accepting an offer from a private equity firm that intends to asset strip the supermarket," said Elliott. "It owns 85% of its store network and 19 manufacturing sites which would look at attractive for this.
"However, Fortress has been quick to allay these fears with managing partner Joshua Pack stating, 'We are committed to being good stewards of Morrisons to best serve its stakeholder groups, and the wider British public, for the long term'."
Amazon Move Unlikely
While it is not beyond the realms of possibility, Elliott noted that he doesn't expect Amazon to also throw its hat in the ring, despite a longstanding partnership between the two operators.
"If Amazon is looking to enter the market its option are running short, with Asda sold last year and Tesco’s huge valuation," he said. "It may then feel the pressure to bid but given its acquisition of Whole Foods in the US, it may be looking for a more premium retailer and while it could be tricky, Sainsbury’s is arguably now its best option if it wants to enter the market via a takeover."
Elsewhere, as Russ Mould of AJ Bell noted, the interest around Morrisons comes at a time when UK assets are becoming "more attractive" to overseas investors.
"Private equity firms have been sitting on oodles of cash for a long time, known as dry powder in the industry, and they now look intent on going on a spending spree," he said.
“Food retail is not an easy sector in which to make money and competition is only getting tougher."
CD&R – Back In The Game?
James Anstead of Barclays, meanwhile, isn't ruling out Clayton, Dubilier & Rice coming back with an improved offer, given the potential synergies the business can gain.
"There are at least two reasons why CD&R might be able to justify paying more than the agreed offer from Fortress," he said. "Firstly, CD&R has a bigger retail footprint in the UK than Fortress – the former owns the MFG chain of petrol forecourts, the latter owns Majestic Wine – so we would expect CD&R to be able to generate bigger synergies with Morrison.
"Secondly, Fortress has indicated that it does not plan to undertake material sale and leaseback activity with respect to Morrison’s store estate – CD&R (and/or other potential bidders) might be able to afford to bid more if it chose to explore such real estate activities."
© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Retail news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine
