Blackfriar: The vultures are circling around Morrisons once again

As Morrisons sales tumble and its shares head ever further south, the vultures are circling once again.

First it was US hedge fund Elliott Associates, which suggested selling off the crown jewels – former chairman and chief executive Sir Ken Morrison’s much treasured real estate.

US investor pressure is mounting on the Bradford-based supermarket to flog off its freehold properties to raise cash for shareholders.

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It should be remembered that Sir Ken deliberately created this portfolio as he didn’t want to be left at the mercy of long-lease agreements.

If a store is no longer viable due to demographic changes or if shoppers decide they don’t want to trudge around a supermarket when they can shop online, Morrisons doesn’t want to be left with a 25-year lease.

There are a lot of other doubts about the US investor plans.

There is no way the Competition Commission would let the big four supermarkets be carved up and forced to sell their assets – especially with trading being so tough. The Commission said it wanted four national players competing in a viable manner after Morrisons bought Safeway in 2003.

As analyst Clive Black, at Shore Capital, says, selling off the freehold assets could leverage the retailers to a point where their viability comes into question.

This week it’s reportedly the turn of the disgruntled Morrisons family to swoop down, although it has to be said that apparently Sir Ken has no idea of their plans.

If the reports are true, it appears that the family are approaching private equity to try to take the firm private and out of the City spotlight.

Maybe they are concerned about American plans to sell off the freehold estate and want to rid the firm of investors who want to make a short-term gain with no thought about the company’s long-term future.

We also know that Sir Ken doesn’t support chief executive Dalton Philips’ decision to enter the online and convenience markets.

However, any thoughts that Morrisons can return to its roots as a small Northern grocer are misguided.

The Competition Commission won’t allow its rivals to buy up its stores and get any bigger.

Morrisons, Yorkshire’s biggest PLC, is late to the party on both convenience and online and it has a grim few years ahead playing catch up.

However, it is the only feasible solution.

While it is easy to see Morrisons’ sales decline as being a problem unique to Morrisons, its main rivals Tesco, Asda and Sainsbury’s are all seeing slower sales at their core estate.

It is only convenience and online that are driving sales as the discounters encroach on their territory.

If the reports are true and the Morrisons family believe that the city is short-termist they are very much mistaken if they believe private equity will bail out the business right now and take a long-term view.

Indeed, it appears that CVC, Carlyle and Apax have all walked away from a deal.

Asked by the Yorkshire Post whether he will still be at the helm this time next year, Mr Philips said: “I have a big job to do in terms of leading this strategy. My job is to execute that. I’m very committed to what we’re doing. I’m very confident about the strategy – I need to lead that.”

He said that the group has been very clear with shareholders about its future strategy and they are backing him.

“They have a good understanding of the structural shifts in this market and we need to move forward,” he said.

We can expect more “miracle solutions” for Morrisons’ woes as this year progresses and its sales continue to fall.

Mr Black at Shore Capital said that given Morrison’s trading weakness and relatively low valuation, such initiatives are to be expected at this time.

However he, like Blackfriar, expects that the status quo will persist for now.

The problem with miracle solutions is they are usually too good to be true and it’s best not to waste too much time and effort on them.

There is only one way that Morrisons is going to rediscover its former strength and that is if it makes a success of convenience and online.

We can expect Mr Philips to update the market when the group announces its final results exactly one month from today.

Much will be riding on the outcome.