Analysts believe Wm Morrison will remain in play after it rejected a private equity offer that valued the UK’s fourth-largest grocer at an enterprise value of £8.7bn
US private equity firm Clayton, Dubilier & Rice is expected to push ahead with its pursuit having had its initial approach rebuffed over the weekend. CD & R approached Morrisons with a 230p-a-share offer last week.
Morrisons said on Saturday that it had rejected the approach, which it believes “significantly undervalued” its business and prospects.
Barclays analysts said: “Our inclination is to think that CD & R’s unsolicited conditional offer is unlikely to have been pitched at the maximum it could theoretically justify paying. At the same time, we tend to think Morrison’s management may struggle to explain to the market what it can do differently as an independent company to keep the share price at 230p or better. On this logic, we tend to think that the story is unlikely to have ended with Morrison’s rejection of the conditional proposal.”
Brokers saw value in Morrison’s partnership with Amazon, a potential counter bidder, as well as its high freehold backing with the company owning approximately 85 per cent of its real estate.
UBS called CD & R’s bid “another reflection of the value” in a grocery sector that delivers free cash flow yields of up to 10 per cent. It expected a positive share price response from rivals.
“If Morrisons were to be taken private, its focus . . . would likely shift to debt servicing in our view. Tesco and Sainsbury could emerge as stronger businesses with greater market share over time in such a scenario,” it said.
“While this may flesh out any potential Amazon interest we doubt if Amazon may actually be interested given their roll out of checkout-free stores and likely low overlap with Amazon Prime customers,” UBS added.
But JPMorgan Cazenove argued that CD & R’s rejected offer already valued Morrisons highly at about 17 times earnings, which compared with Asda’s recent buyout at 9.5 times earnings.
“We regard these multiples as high for a grocer in general, yet particularly more for one that is ex growth with no margin upside, operating in an increasingly competitive market,” JPMorgan said. It advised clients “not to chase” the shares as “we continue to struggle to see the path for Morrisons to unlock value via execution, whilst the strategic and financial rationale for CD & R or others does not seem obvious to us either.”
Repeating an “underweight” rating on Morrisons, JPMorgan said: “While we would clearly argue Morrisons deserves to trade at a valuation premium over Asda (structurally better positioned, better execution), a premium of circa 50 per cent appears excessive.”
Capita revealed a £380m deal to sell its back office joint venture with the UK government’s cabinet office, Axelos. PeopleCert International agreed to buy Axelos after what Capita called a competitive auction process. Subject to shareholder approval Capita will receive net cash proceeds of £172.5m for its 51 per cent stake upon completion of the sale, in addition to a cash dividend of £11.1m. The outsourcer said it remains on track to realise combined disposal proceeds of at least £200m this year.
Kerry, the Irish foods group, said it is buying preservatives maker Niacet from private equity fund SK Capital Partners for €853m. The acquisition comes after Kerry last week agreed to sell its British and Irish convenience foods business to US peer Pilgrim’s Pride for €819m.
Hotel Chocolat said it is taking control of its lossmaking Rabot 1745 joint venture for a nominal sum of £4. Rabot was set up in 2016 in partnership with Hotel Chocolat chair Andrew Gerrie to develop beauty products “inspired by” the group’s Saint Lucian cacao farm and spa. As part of the deal the company said it would issue more than 200,000 shares to settle a £744,249 loan owed to Gerrie.
Goldman Sachs will this week start offering transaction banking services in the UK, the division’s first international expansion after it opened last year in the US. Goldman said the transaction bank, which offers services such as cash management and treasury to businesses, has already won 250 clients and $35bn in deposits.
Mike Ashley’s Frasers Group said it instructed brokers to spend up to £60m on share buybacks ahead of the retailer entering its closed period for full-year results. The retailer had last month launched a buyback on the same terms.
The UK government plans to regulate video streaming companies such as Netflix and Amazon Prime in the same way as traditional broadcasters, the Press Association reported. Culture Secretary Oliver Dowden will outline a proposal to extend the powers of regulator Ofcom in a white paper expected next week, PA said.
Stockbroker WH Ireland said that Alistair Buchanan, the former chief executive of utility market regulator Ofgem, has stepped down as a non-executive director to concentrate on other business interests. Buchanan was appointed to the WH Ireland board in December 2019.
Santander has set its sights on becoming a major force in European investment banking. Europe’s largest retail lender sees an opportunity to take advantage of what it believes is growing unease about the dominance of US banks.
A blank-cheque company backed by hedge fund billionaire Bill Ackman is to buy a 10 per cent stake in Universal Music Group for $4bn. Pershing Square Tontine Holdings, Ackman’s investment vehicle, confirmed on Sunday that it will effectively spin out the stake by distributing the equity to its shareholders after Vivendi, UMG’s French owner, completes its planned listing of the stock on Euronext Amsterdam.
Asian markets slipped on Monday as a sell-off deepened in response to the US central bank’s hawkish shift on inflation. The falls followed the worst week for Wall Street in almost four months, which was prompted by comments from Federal Reserve chair Jay Powell on Wednesday that signalled the central bank could raise rates to tame inflation sooner than investors had previously thought.
Patrick Jenkins The European Commission has elected to exclude 10 institutions from a landmark bond auction on the grounds they had historically breached antitrust rules. Five of the 10 barred banks were British or American, and all of them have European platforms in the City of London. If this was protectionism, it could be profoundly self-defeating for European banks. The more inward-looking EU financial markets become, the more they risk further decline.
Pilita Clark Career site Glassdoor compiles an annual list of top CEOs, but there’s no reliable list of the worst bosses. Wouldn’t one offer a more useful guide for potential employees, customers and investors, especially when it comes to smaller, less scrutinised companies?