What’s Going On Here?It’s been a long, grueling bidding war, but American private equity (PE) firm Clayton, Dublier, and Rice finally agreed to buy UK grocery store chain Morrisons over the weekend. What Does This Mean?PE firms – which buy companies in hopes of selling them on for a profit further down the line – are always on the lookout for companies that make money in good times and bad. And grocery store chains have certainly proved their mettle in the last 18 months, as shoppers turned up in their droves to buy something, anything that’d make lockdown more bearable.
That explains why a handful of PE firms have been locked in a bidding war to buy Morrisons since spring. Now, though, the company has accepted a $9.5 billion offer from Clayton, Dublier, and Rice (CD&R) – about 60% more than its shares were worth before the bidding war began, and enough to make it the biggest British buyout of a public company in over a decade. CD&R can’t wait to get started: it’ll focus on growing Morrisons’ wholesale and ecommerce businesses in hopes of boosting the chain’s market share. Why Should I Care?For markets: There’s always Plan B.
CD&R’s gain was Fortress Investment Group’s loss, but the rival PE firm said it’s still keen to invest in the UK in the future. Investors, then, are speculating that it might move on to bigger and better things – namely Britain’s second-biggest grocery chain, Sainsbury’s, which saw its stock climb nearly 4% on Monday.
The bigger picture: There’s always Plan C.
There’s another reason PE firms were so interested in Morrisons: the company owns about 85% of its 500 UK stores, which adds up to an estimated $10 billion worth of real estate. And since that amounts to more than CD&R’s offer, the PE firm has arguably made a foolproof investment: it could theoretically make all its money back by selling off that property portfolio alone. | 