Morrisons suitor should raise offer to around £6.5bn, top investor says

The US private equity firm trying to buy Morrisons should increase its offer to around £6.5bn to merit engagement from the Bradford-based supermarket's board, according to a top ten shareholder in the retailer.

Morrisons' chief executive, David Potts
Morrisons' chief executive, David Potts

Morrisons - Britain's fourth largest grocer after Tesco, Sainsbury's and Asda - has rejected a proposed £5.52bn cash offer from Clayton, Dubilier & Rice (CD&R), equivalent to 230p a share.

"In our view there is validity to a bid...," said JO Hambro, which manages funds accounting for 3 per cent of Morrisons.

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"We believe any offer for the group approaching 270p per share merits engagement and consideration."

Shares in Morrisons closed at 247.7p on Wednesday.

JO Hambro noted CD&R's existing ownership of petrol forecourt group Motor Fuels Group (MFG).

It said if CD&R were to buy Morrisons, the combined group would have around 1,200 forecourt sites across the UK.

"The fuel purchasing and food retailing synergies here are clear to see. But CD&R should pay a fair price in order to access those synergies," JO Hambro said.

It said a valuation of eight times earnings before interest, tax, depreciation and amortisation (EBITDA) "seems reasonable given the group's qualities and the potential synergies on offer."

Analysts expect CD&R to come back with a higher offer and believe other suitors could be flushed out, including possibly Amazon, which has a partnership deal with Morrisons.

A spokesperson for CD&R declined to comment.

Last week Legal & General Investment Management (LGIM), which Refinitiv data shows as having a 1.58 per cent stake in Morrisons, said it did not expect a bid at 230p to succeed.

Silchester, Morrisons' biggest shareholder with a stake of 15.2 per cent has declined to comment.