Morrisons’ shares rocket over talk of taking grocer private

SHARES in Morrisons shot up more than five per cent yesterday on reports that the founding family is to launch a bid to take the listed company back into private hands, but analysts and shareholders poured cold water on the idea and former chairman Sir Ken Morrison said he was unaware of any talks.

Sir Ken Morrison

The shares eventually closed up just 0.25 per cent, a rise of 0.60p to 237.80p as investors discounted the likelihood of a deal.

The reports claimed that the founding family behind struggling Morrisons has sounded out private equity funds to assess their interest in taking the supermarket private.

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The family, which holds about 9.5 per cent of the group, is understood to have contacted CVC Capital Partners, Carlyle Group and Apax Partners.

Apax has decided not to pursue a deal and sources close to the first two said talks were never really serious.

It is understood that the family was unable to find a buyout partner due to concerns about Morrisons sales growth and the size of the deal.

The group’s market value is more than £5.5bn and any buyout would be worth over £7bn, meaning that a group of private equity firms would have to work together to fund the deal.

Barclays analyst James Anstead said: “The size of a deal means that it would likely involve more than one firm, requiring a degree of co-operation that would complicate a potential deal.

“Typically, buyout firms approach shareholders rather than the other way around, so this aspect of the news reduces the likelihood of a deal in our eyes.

“Potential buyers will likely be nervous of whether the business is fundamentally broken.

“Bear in mind that the family have less than 10 per cent of the shares, so they are far from controlling shareholders.”

If a deal was to go ahead, it would be the biggest purchase of a British retailer since the 2007 buyout of Alliance Boots.

Morrisons, CVC, Carlyle and Apax declined to comment, while the Morrison family could not be immediately reached for comment.

One UK based institutional shareholder of Morrisons said it was unsure how the firm would work any better in private hands.

“The property asset backing could be an angle, but how that could be realised, and how robust that asset value is in the face of lacklustre trading, is uncertain,” it said.

Morrisons is facing calls from activist investors, including US hedge fund Elliott Associates, to radically restructure its property portfolio and free up cash from its freehold assets.

The grocer plans to detail the result of a property review when it publishes 2013-14 results on March 13, but has said the majority of its core estate will remain freehold.

Shares in Morrisons have lost 18 per cent of their value over the last six months on concerns over the grocer’s weak trading.

Former chairman and chief executive Sir Ken, whose father founded the company in 1899, holds the honorary post of life president of Morrisons but has not had any involvement in the running of the company since his retirement in 2008.

However, he has made it clear that he doesn’t support chief executive Dalton Philips’ decision to enter the online and convenience markets.

At the Morrisons AGM in 2012, Sir Ken accused the management of Morrisons of neglecting the core business and delivered a damning assessment of the supermarket group’s performance over the previous three years.

“I believe that we are witnessing the creation of a new Safeway with all the inherent problems,” he told shareholders.

“I believe the company is preoccupied with many other activities and I fear neglecting the core business is dangerous.”

The company’s takeover of rival Safeway in 2004 led to a string of profit warnings before the past management team managed to turn it around and successfully integrate the two businesses.