Jul 28, 2021
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Morrisons' biggest shareholder isn't supporting takeover bid

Jul 28, 2021

The private equity takeover of UK supermarkets giant Morrisons might not be all smooth sailing with news that its biggest shareholder doesn't intend to support the deal.

Photo: Sandra Halliday

Fund manager Silchester holds a 15.4% stake in the retailer and has said it's not inclined to back the bid from US-based consortium Fortress. It said it was "disadvantageous" for existing investors.

It’s not averse to any bid, however, and said that the retailer’s board should “allow more time to respond to other parties who might offer better value to Morrison’s public shareholders”.

Morrisons, which owns the Nutmeg clothing brand, has previously said that its board has recommended the £6.3 billion fortress bid even though other potential bidders are mulling higher offers.

It's unclear whether other major shareholders are disinclined to support the current bid as well, although none of them have so far said they support it. It’s also unclear how much of an influence the Silchester decision might have on them and why the Morrisons board was so quick to agree to the Fortress bid.

The deal needs the support of 75% of shareholders in a meeting next month to get the green light and it would only take holders of another 10% of the shares to say no for that threshold to be missed.

It's an embarrassment for Morrisons, which has gone out of its way to make reassurances around any Fortress takeover.

It has said the company will continue with its current strategy and Fortress has met with government ministers to try to soothe any concerns over job losses and any large-scale freehold property sell-offs.

Private equity takeovers of large retailers remain unpopular in certain quarters in the UK with both politicians and trade unions seeing them as simply a way to extract a quick buck from businesses by selling off property assets and leaving the retailers with high rents to pay in future. This was an issue frequently mentioned when Debenhams was sold to private equity. The eventual failure of that retailer justified the criticism in many people’s eyes.

It could also be argued that if selling freehold property to raise cash is such a good idea, Morrisons management would be able to do that while it remains  stock exchange-listed rather than needing a private equity takeover.

In fact, Silchester said there was “little in the recommended offer that could not be achieved by Morrison as a listed company”.

Morrisons owns 87% of the freeholds of its store sites and even just a few of these could generate hundreds of millions of pounds for the firm. The company previously sold its site in Camden, London to a house-builder for £85 million.

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