One of the world’s biggest buyout firms is weighing a spectacular £5.5bn takeover bid for Wm Morrison, Britain’s fourth-largest supermarket chain by market share.
Sky News has learnt that Clayton Dubilier & Rice (CD&R) is in the early stages of evaluating an offer for the grocer, a move that would send fresh shockwaves through the UK’s food retailing industry.
With a workforce of approximately 110,000 people, Morrisons is one of the biggest private sector employers in Britain.
CD&R is said to have begun approaching banks about financing a potential bid for Morrisons in recent days.
It is also understood to have made a preliminary approach to Morrisons’ board.
One source cautioned, however, that a formal bid for the grocer was far from certain and that the public disclosure of CD&R’s interest could force the project to be abandoned.
The Takeover Panel, which polices merger activity involving London-listed companies, is likely to seek clarification from CD&R and Morrisons about whether they are in discussions.
It is possible that the buyout firm would cease work on a deal rather than confirm it publicly, as has happened in other recent UK takeover situations, according to one source.
If it does progress, however, a bid could entail a dramatic re-emergence in Britain’s supermarket sector by Sir Terry Leahy, one of CD&R’s operating partners in Europe.
Sir Terry, who reigned over Tesco for 14 years before retiring in 2010, would be expected to play a key role in a bid.
If a deal is completed, it would potentially reunite Sir Terry with Andrew Higginson and David Potts, Morrisons’ chairman and chief executive respectively, who both spent much of their careers at Tesco.
Further details of CD&R’s interest in Morrisons were unclear this weekend, although based on a conventional takeover premium, any offer would value the company at £5bn or more.
It was also unclear whether CD&R’s interest was being pursued on a standalone basis, or with a strategic or financial partner.
Morrisons had a market value at Friday’s closing share price of £4.3bn, with significant value still remaining in its freehold property portfolio.
Its shares have remained broadly flat during the last year, and are roughly midway between their peak and trough over that period.
Morrisons has a grocery market share of just over 10%, trailing third-placed Asda on 14.4%, according to Kantar, the market research group.
A takeover by CD&R would be the latest seismic deal in Britain’s grocery sector.
In 2019, J Sainsbury and Asda abandoned their attempt to merge into a £15bn retail group after it was blocked by the Competition and Markets Authority (CMA).
That decision spurred Asda’s owner, Walmart, to kick off an auction of the third-biggest supermarket by market share.
Last September, a consortium comprising TDR Capital and EG Group, the petrol stations giant controlled by Mohsin and Zuber Issa, was selected as the preferred bidder for Asda in a £6.8bn deal.
Their takeover was approved by the CMA this week after agreeing to sell 27 Asda petrol stations.
Asda’s new owners are now engaged in the search for a new chief executive to replace Roger Burnley, who will step down in the coming months.
CD&R ranks among the world’s largest private equity investors, having raised $16bn for its latest buyout fund earlier this year.
In the UK, it has been a prolific acquirer of large businesses, including B&M Retail, the discount chain which is now a publicly quoted company, and Motor Fuel Group (MFG), the petrol forecourt operator.
It has also participated in the recent frenzy of private equity bidders for London-listed companies, agreeing a £2.6bn takeover of the pharmaceuticals group UDG Healthcare several weeks ago.
The US-based buyout firm is regarded as a supportive long-term investor in the companies it backs, frequently building significant multibillion dollar enterprises from relatively small initial purchases.
People who have worked with CD&R in the UK say it significantly increased employment at companies including B&M and MFG after investing in their growth.
CD&R is said to have been attracted to Morrisons’ strong balance sheet and management team, although Mr Potts, 64, is expected to retire in the next few years.
The company was founded in 1899 by egg and butter merchant William Morrison at a stall in Bradford Market, it opened its first shop in 1958.
Its maiden supermarket followed three years later and in 1967, it floated on the stock exchange, preceding an unbroken 35-year run of sales growth which ultimately took it into the FTSE-100 index in 2001.
By then, Sir Ken Morrison, William’s son and the company’s veteran boss, had been knighted and in 2004 he engineered the most audacious move in Morrisons’ history: the £3bn takeover of Safeway which transformed it into a major nationwide grocery retailer.
Sir Ken stepped down as chairman in 2008, and he died in 2017 at the age of 85.
Morrisons’ performance stuttered under Dalton Phillips, who was ousted in 2015, leading to the appointment of Mr Potts.
Alongside Mr Higginson, the chief executive has engineered an impressive turnaround, and has signalled that more cash will be returned to shareholders as business normalises in the aftermath of COVID19.
CD&R’s interest in the chain is not the first time that a prospective buyer has examined an offer for Morrisons.
Amazon has been repeatedly rumoured as a suitor, with Morrisons established as a supplier of food products to the online behemoth’s Prime Now and Pantry customers.
Earlier this month, Morrisons was on the receiving end of one of the biggest shareholder revolts in UK corporate history when 70% of investors voted against its pandemic pay packages.
City institutions rebelled over its remuneration committee’s use of discretion to override the exceptional costs incurred by the coronavirus crisis.
Morrison’s saw annual profits slump to £201m last year, having decided – along with other big supermarkets – to hand back £230m in business rates relief to the government.
However, it has predicted that profits will rebound sharply this year and next as COVID-related costs subside.
This week, Tesco warned that sales are likely to fall as shopping behaviour returns to pre-pandemic levels.
CD&R and Morrisons both declined to comment on Saturday.
London-listed SPAC targets merger with chronic disease drug developer Istesso
The first “blank cheque” company to list in London after an overhaul aimed at helping the City compete with rival financial centres is in talks to merge with a privately owned drugs group developing treatments for chronic diseases.
Sky News has learnt that Hambro Perks Acquisition Company (HPAC) is in advanced negotiations about a deal, which could be announced within weeks.
If successfully completed, the merger would represent a milestone for the London stock market even as scores of so-called special purpose acquisition companies (SPACs) – predominantly in New York – are being wound up following a slump in valuations.
City sources said on Saturday that HPAC had been in discussions with Istesso for some time.
A merger would value the company at several hundred million pounds, although a more precise valuation could not be ascertained this weekend.
Founded in 2017, Istesso focuses on an area of medicine called immunometabolism, and is developing treatments for severe diseases such as arthritis and multiple sclerosis.
Several of its products have reached Phase-II trials, with others at an earlier stage of development.
One biotech analyst who is familiar with Istesso’s work said the business appeared to have significant growth potential.
Istesso is majority-owned by IP Group, the London-listed company which focuses on commercialising intellectual property across sectors such as energy and healthcare.
Last week, IP Group named Anita Kidgell, head of corporate strategy at the FTSE-100 pharmaceuticals giant GSK, as a non-executive director.
The SPAC was the brainchild of Hambro Perks, a London-based venture capital firm which holds stakes in dozens of early-stage companies such as What3Words, the geolocation start-up, and Tide, the business bank.
It is chaired by Sir Anthony Salz, the former Rothschild banker and City lawyer.
Dominic Perks, Hambro Perks’ co-founder, said at the time of HPAC’S listing in November 2021 that he had decided to list the vehicle in London in the wake of rule changes which meant the City could compete more robustly with New York and Amsterdam.
The SPAC, which raised nearly £150m from its initial public offering, had 15 months to secure a deal, meaning it faces a deadline next month to announce the merger or seek an extension from shareholders.
Hambro Perks has substantial experience of healthcare investment, having backed start-ups including Aide, a digital health service which helps patients manage chronic conditions, Genomics, a genetics-based drugs group, and Akamis Bio, a clinical-stage oncology company.
The SPAC boom in the US triggered the arrival on the public markets of dozens of companies, including Sir Richard Branson’s Virgin Galactic and Virgin Orbit,
A string of UK companies, including Babylon Health and Cazoo, the online car retailer, have merged with SPACs and subsequently seen their valuations plummet.
Rothschild is advising the Hambro Perks SPAC on the deal, while Istesso is being advised by Panmure Gordon.
HPAC and IP Group have both been contacted for comment.
Flybe customers urged not to go to airport as carrier collapses and cancels all flights
Passengers due to travel with Flybe have been told not to go to the airport after the regional carrier ceased trading and all flights were cancelled.
The airline has gone into administration less than a year after returning to the skies following a previous collapse.
Ticket-holders were advised to check the Civil Aviation Authority website for further information or if they had booked through an intermediary to contact the relevant agent.
Flybe operated scheduled services from Belfast, Birmingham and Heathrow to airports across the UK and to Amsterdam and Geneva.
In a statement posted on its Twitter account, the airline said: “We are sad to announce that Flybe has been placed into administration.
“David Pike and Mike Pink of Interpath have been appointed administrators.
“Regretfully, Flybe has now ceased trading.
“All Flybe flights from and to the UK are cancelled and will not be rescheduled.”
CAA consumer director Paul Smith said: “It is always sad to see an airline enter administration and we know that Flybe’s decision to stop trading will be distressing for all of its employees and customers.
“We urge passengers planning to fly with this airline not to go to the airport as all Flybe flights are cancelled.
“For the latest advice, Flybe customers should visit the Civil Aviation Authority’s website or our Twitter feed for more information.”
A government spokesman said: “This remains a challenging environment for airlines, both old and new, as they recover from the pandemic, and we understand the impact this will have on Flybe’s passengers and staff.
“Our immediate priority is to support people travelling home and employees who have lost their jobs,” a spokesperson said.
“The Civil Aviation Authority is providing advice to passengers to help them make their journeys as smoothly and affordably as possible.
“The majority of destinations served by Flybe are within the UK with alternative transport arrangements available.
“We recognise that this is an uncertain time for affected employees and their families.
“Jobcentre Plus, through its Rapid Response Service, stands ready to support any employee affected.”
Flybe had previously been pushed into administration in March 2020 with the loss of 2,400 jobs as the COVID-19 pandemic battered large parts of the travel market.
Its business and assets were purchased in 2021 by Thyme Opco, which is linked to US hedge fund Cyrus Capital.
Thyme Opco was renamed Flybe Limited.
It had been based at Birmingham Airport.
On the resumption of its flying operations last April, it planned to operate up to 530 flights a week across 23 routes, serving airports such as Belfast City, Birmingham, East Midlands, Glasgow, Heathrow and Leeds Bradford.
Have you been affected by the collapse of Flybe? Have the flight cancellations ruined your plans?
Government homes in on £5bn cladding settlement with housebuilders
Michael Gove, the levelling up secretary, is closing in on a multibillion pound deal with Britain’s biggest housebuilders to help resolve the national cladding crisis exposed by the 2017 Grenfell Tower disaster.
Sky News has learnt that major companies including Barratt Developments and Persimmon are preparing for the imminent signing of a legally binding contract with the government that could ultimately cost the industry £5bn or more.
One executive said they expected the final contract to be signed and unveiled as soon as next week, although they cautioned that the timing remained fluid.
Last year, dozens of developers signed a pledge to fix buildings constructed since the early 1990s, with revisions to the deal with government in recent weeks having focused on the scope of companies’ exposure.
The City watchdog is thought to have been involved in discussions with the industry about whether signing the contract would require the approval of shareholders in listed companies such as Barratt, Persimmon and Taylor Wimpey.
Sources have estimated the cost of the new Residential Property Developers Tax at up to £3bn and the bill for self-remediation at around £2bn.
A further tax on the industry could raise £3bn, industry executives have concluded, leading some companies and investors to warn that the sector risks seeing a flight of capital.
Earlier this month, the Department for Levelling Up, Housing and Communities said it was “finalising the legally binding contracts that developers will sign to fix their unsafe buildings, and expect them to do so very soon.
“We will not accept any backsliding on their commitments.
“It is building owners’ legal responsibility to make sure that all buildings are safe.”
FTSE-100 housebuilders have already taken significant financial provisions in their accounts to prepare for the signing of the final government contract.
Some have flagged during recent earnings calls with analysts that they expected an imminent settlement.
“In signing the pledge, we’re saying that we essentially had a commitment that we wanted to sign up to the legal agreement,” David Thomas, Barratt’s chief executive, told analysts this month.
” There’s been a process of discussion regarding the legal agreement that has been ongoing since June last year, so we think we’re getting close to the government publishing the legal agreement, and we would expect in due course that we would sign up to that.”
A spokesman for the Home Builders Federation (HBF) said: “The pledge [signed last year] demonstrated the industry’s commitment to play its part in ensuring leaseholders don’t pay for work needed to make buildings safe.
“We have been working constructively with government to ensure the detailed contract reflects the commitments of the pledge and we await a final version.
“UK housebuilders are taking responsibility and are well progressed with remediating their own buildings and are already paying another £3bn to fund work on buildings built by foreign companies and others.
“Government now needs to deliver on commitments to secure contributions from foreign builders and the material providers at the heart of this issue and avoid targeting UK housebuilders further for buildings built by others”.
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