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On March 20, 2020, shoppers line to pay in a Morrisons supermarket in London, England.
Getty Images/AFP/Daniel Leal-Olivas
Stocks in
Amazon
partner
Morrison, Wm
On Monday, the stock climbed as high as 11% following New York-based
Apollo Global Management is a management firm based in New York
was the most recent private equity firm to express interest in the UK’s fourth-largest supermarket chain. Apollo said in a statement that it is “in the preliminary stages of reviewing a possible bid for Morrisons,” but that no approach has been made to the Morrisons board and that “no offer can be guaranteed.”
Morrisons, an Amazon partner, saw its stock soar after a $12.10 billion offer. These Stores Could Be Targets As Well. The news comes just two days after the grocery company in northern England, which began as a market stall in 1899, accepted a £6.3 billion ($8.72 billion) acquisition deal from a group led by SoftBank-backed Fortress Investment Group. It had had rejected an unsolicited £8.7 billion bid from private equity firm Clayton, Dubilier & Rice just weeks before this development. Following the peak of the Covid-19 pandemic, European equities are becoming more appealing to global investors as the success of vaccine programs prompts the reopening of European economies, with some stocks perceived as being very inexpensive. The sale of last month’s
Walmart
-owned Regulators approved the sale of Asda, the UK’s third-largest supermarket, to British retailer EG Group and private equity firm TDR Capital. Retailers face intense competition from discounters and online behemoths, therefore their values are relatively modest, and they benefit from property ownership and strong cash flow creation. If there is a bidding war, this is fantastic news for Morrisons’ investors. The supermarket chain, which is listed in the United Kingdom, has a wholesale agreement with Amazon to supply the internet giant with produce for same-day delivery. While Amazon, which already owns WholeFoods, would be a natural fit for the company, it has a history of avoiding bidding wars. Prior to the bid interest, Morrisons’ shares had down 5.11 percent over the previous 12 months, pulled down by stiff competition, low margins, and many of the senior businesses having to pay hefty rent on storefronts at a time when shoppers are making more of their purchases online. Morrisons has a total of 497 stores. Read: Grocery Stores in the United Kingdom Morrisons Is a Good Investment in the Era of Coronavirus Unlike its competitors, the grocer has a unique strategy. It owns 19 food-processing facilities, ranging from abattoirs to farms, giving it greater control over its supply chain and the opportunity to increase profit margins. It also owns the freehold to 85 percent of its stores, which it may use to borrow money in the future. Property may be the key to unlocking value, making retail a defensive bet.
RBC Capital Markets analyst Richard Chamberlain released a note on Sunday stressing the retail sector’s appeal to long-term private investors. “Despite discount competition and cost pressures on margins, we believe the food retail sector remains appealing to private equity firms for its quasi bondlike cashflows,” Chamberlain said. “However, we believe that property asset backing is desirable for private-equity investors since it supports a higher level of financial leverage and would be beneficial in achieving a higher credit rating in the bond market if a business were to be refinanced,” he added. To contact the editors at Barron’s, send an email to editors@barrons.com./n
