Three private investment groups headed by SoftBank’s Fortress have reached a 9.5 billion pound deal to acquire Wm Morrison, the fourth largest supermarket chain in the UK.
According to the terms of the transaction announced on Saturday morning, Fortress and a division of the Canadian pension fund CPPIB and Koch Industries will pay 252 pence per share and support a special dividend of 2 pence to purchase the grocery store. Before accounting for net debt of 3.2 billion pounds, it valued Morrison’s equity at 6.3 billion pounds.
Two weeks ago, the Bradford-based group said it rejected the private equity group Clayton, Dubilier & Rice’s initiative to offer 230 pence per share.
The Fortress-led bid valued Morrisons stock at a 42% premium to the company’s pre-disclosure price CD&R method.
This transaction will be the largest UK private equity acquisition since KKR acquired Boots in 2007, and the acquiring group has announced at least 12 UK listed companies since the beginning of this year as Brexit and the pandemic have put pressure on share prices.
Morrisons Chairman Andrew Higginson said: “We studied Fortress’ methods, their business plans, and their role as the owner of a unique British food manufacturer and shopkeeper with more than 110,000 colleagues and an important role in British food production. Overall adaptability and agriculture.”
He added: “We know very well that Fort has a full understanding and appreciation of Morrison’s basic characteristics.”
As part of the agreement, investors made a series of commitments, including a plan to keep the grocery store headquarters in Bradford. The organization said it would guarantee pensions and “fully support” the supermarket’s agreement to pay all employees at least £10 an hour.
Fortress stated that it “does not expect” any “significant” sale and leaseback of Morrison’s store.
According to people familiar with the matter, the Fortress-led group has provided Morrison with five methods. Starting May 4, it has offered 220 pence per share.
People familiar with the matter said that the bidders are investing more than £3 billion in equity to finance the deal, with about half coming from Fortress and the rest being split between CPPIB and Koch. CPPIB is investing through its credit department.
The transaction will be financed by GBP 5.75 billion in debt underwritten by HSBC and Royal Bank of Canada.
Fortress is owned by Japan’s SoftBank, which acquired the business for $3.3 billion in 2017, making it an unusual asset in the portfolio of technology investors.
Fortress was founded in 1998 by three people including Wesley Edens, manages approximately $53.1 billion in assets, and is known for its work under credit and distressed investments.
Fortress pointed to its experience in investing in US supermarkets Albertsons and Fresh & Easy, as well as gas station operators United Pacific, Alta Convenience and Circle K.
fortress buy The retail store of British specialty wine retailer Majestic Wine was acquired for £95 million in 2019.
Competitor CD&R had previously been required to make a firm offer or leave for Morrison before July 17. Now that the board of directors has endorsed an alternative offer, it is unclear whether CD&R will try to disrupt the process by counter-offering during the months-long Fortress deal finalization.
Morrisons’ largest shareholder is Silchester, a low-key London asset management company that owns 15% of the shares. The company did not immediately comment on Fortress’s bid.
The Morrison management team, led by CEO Dave Potts, has been praised for its attempts to reverse the business since 2015, but it has failed to win the favor of investors.
Prior to the disclosure of the CD&R approach, the stock price had been below the trading price when Potts took over.
In the year to the end of January, Morrison reported sales of £17.5 billion and net income of £96 million. The grocery store faced shareholder dissatisfaction with its compensation arrangements in June.
Additional reporting by Attracta Mooney