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CD&R Beats Fortress in Auction and Wins Morrison Prize

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(Bloomberg) -- Clayton Dubilier & Rice LLC won a months-long battle for WM Morrison Supermarket Plc, beating out private-equity rival Fortress Investment Group in a rare auction with a knockout 7 billion-pound ($9.5 billion) offer for Britain’s fourth-largest grocer.

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The final offer of 287 pence a share “represents excellent value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders,” Chairman Andrew Higginson said in a statement late Saturday. CD&R had topped Fortress’s 286 pence-a-share offer in an auction run by the Takeover Panel, the body that oversees U.K. acquisitions.

While the winning bid is a 61% premium to Morrison’s share price before takeover interest was revealed, the stock closed at 297 pence on Friday, suggesting the market thought the auction might break the 3-pound mark.

CD&R’s victory clears the path for what will be Britain’s biggest take-private deal in more than a decade, according to data compiled by Bloomberg. Morrison attracted intense buyout activity this summer, with bidders drawn to a well-run and highly cash-generative business with a valuable real estate portfolio of nearly 500 stores across Britain.

‘Good Outcome’

Shareholders will have the final say when they vote on the deal on Oct. 19. If investors approve the transaction, it will bring to an end more than half a century on the public market for the grocer founded in 1899 by William Morrison as an egg-and-butter stall in Bradford in the north of England.

“The Morrisons chairman and his board have managed the acquisition process well over the last few months and delivered a good outcome for shareholders and other stakeholders,” said Richard Colwell, head of U.K. equities at Columbia Threadneedle Investments.

The deal also marks the return of Terry Leahy, a former chief executive officer of Tesco Plc, Britain’s largest grocer, who led the CD&R bid. Leahy has a long history with most of the Morrison management team, including Higginson and CEO David Potts, who spent much of their careers at Tesco.

Since taking over in 2015, Potts has carried out a comprehensive turnaround of the grocer, which was hemorrhaging sales and market share when he took charge. Leahy is likely to replace Higginson as chairman.

Attractive Environment

The fight to control Morrison has been under way since June, when news emerged of a CD&R approach that had been rejected by the supermarket operator. Since then, the board has fielded a number of offers from both firms and has at various stages recommended each of the parties to shareholders.

“Morrisons is an outstanding business and we wish the company and all those involved with it the very best for the future,” said Joshua Pack, managing partner at Fortress, said in a statement: “The U.K. remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities.”

Britain’s highly-competitive supermarket sector has been beset with merger activity in recent years. In 2020, TDR Capital and the Issa brothers agreed to buy the country’s third-largest grocer, Asda Group Ltd., in a 6.8 billion-pound deal. Elsewhere in Europe, France’s Carrefour SA was this year targeted by Canada’s Alimentation Couche-Tard Inc., only for the French government to scupper a takeover.

CD&R’s deal for Morrison will be funded with more than 3.4 billion pounds of equity from funds managed by the private equity firm. Debt of about 6.6 billion pounds will be provided by bridge loans and revolving credit facilities by Goldman Sachs Group Inc., Bank of America Corp., Mizuho Financial Group Inc. and BNP Paribas SA.

CD&R Pledges

In a scheme document published last month, CD&R said it’ll help Morrison grow by expanding its wholesale business and driving online sales. The private equity firm pointed to its experience with British discounter B&M, which it said more than doubled revenue and earnings before interest, taxes, depreciation and amortization under its ownership. CD&R also owns Motor Fuel Group, a large petrol station business, and is likely to consider rolling out the grocer’s convenience store brand - Morrison’s Daily - on these forecourts.

In a bid to ward off any potential negative political reaction to the takeover, CD&R has pledged to maintain Morrison’s policy on pay and pensions and support its long-term relationships with British farmers. It has also agreed to provide “additional security” to support the grocer’s pension programs.

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