Bloomberg News

Wm Morrison Founding Family Said to Sound Out Buyout Firms (2)

February 12, 2014

A Pedestrian Stops Outside a Morrisons M Local Store

A pedestrian uses a mobile handset as she stands with a baby stroller outside a Morrisons M Local store, operated by Wm Morrison Supermarkets Plc, in London. Photographer: Chris Ratcliffe/Bloomberg

The founding family of U.K. grocer Wm Morrison Supermarkets Plc (MRW) has contacted private-equity funds such as CVC Capital Partners Ltd. and Carlyle (CG:US) Group LP to weigh their interest in taking the retailer private, people with knowledge of the matter said.

The family has so far been unable to find a buyout partner due to concerns about Morrison’s slow sales growth and the size of the deal, said two of the people, who asked not to be named because the talks are private. Morrison shares rose as much as 5.4 percent, the steepest gain in a month.

The Morrison family holds about 9 percent to 10 percent of the grocery chain, two of the people said. The family also has approached other private-equity funds including Apax Partners LLP, the people said. However, Apax has decided not to pursue a deal, one of the people said.

Morrison came under pressure last month from hedge fund Elliott Management Corp., which advocated that the grocer separate most of its real estate in order to boost the company’s stock. Morrison shares have dropped the past two years as the grocer struggled to catch up with rivals that offered sales over the Internet and as customers fled to discounters.

“We would expect a number of serious private-equity investors to be running the rule over Morrison,” Clive Black, an analyst at Shore Capital, said in a note. “Our central expectation is that the status quo will persist for now.”

Shares Jump

Morrison rose 2.6 percent to 243.3 pence at 10:56 a.m. in London trading, valuing the Bradford, England-based company at about 5.7 billion pounds ($9.4 billion).

Ken Morrison, the son of the company’s founder, is unaware of discussions between his family’s trusts and private-equity firms, he told the Times today. The former chairman, who stepped down in 2008 after a career spanning more than half a century, said he was surprised by the report and had no inside knowledge.

A buyout of Morrison would exceed 7 billion pounds and require a group of funds to work together, said two of the people. At that price, a deal would be the biggest purchase of a U.K. retailer since the 2007 acquisition of Alliance Boots Plc.

A buyout “is a credible outcome,” Mike Dennis, an analyst at Cantor Fitzgerald, said in a note. Based on freehold retail space that may be worth 10 billion pounds “any starting bid for the equity would be 330 pence plus,” he wrote.

Carlyle and CVC have discussed working together on a joint bid for Morrison, said one of the people. There is no certainty a deal can be reached, the people said.

Online Sales

A spokesman for Morrison declined to comment. Representatives for CVC and Apax declined to comment. A spokeswoman for Carlyle also declined to comment.

“We are skeptical that a deal is likely given its size and the fundamental trading weakness of Morrison,” said James Anstead, an analyst at Barclays Plc in London. “Potential buyers will likely be nervous of whether the business is fundamentally broken.”

Morrison trails peers in sales of online groceries, which it only began to offer on Jan. 10, years after market leader Tesco Plc (TSCO) first delivered food to customers. Morrison teamed up with Ocado Group Plc to offer the option last month.

Morrison is seeking to reverse seven straight quarterly declines in same-store sales with online sales and an expansion of convenience stores. The grocer has set a target to service half the country online by the end of this year.

Ken Morrison has been among critics of the company, telling the Sunday Telegraph in 2012 that management risked losing touch with customers and was “neglecting the core business.”

Slowing Market

The U.K. grocery market grew at the slowest pace in nine years in the past three months, researcher Kantar Worldpanel said yesterday. The four biggest grocers have struggled to retain customers who have fled to discounters Aldi and Lidl at one end of the grocery spectrum, and the upscale Waitrose chain at the other.

Morrison posted sales of 18 billion pounds in fiscal 2013, less than a third of the annual revenue of Tesco.

The grocer was started by William Morrison in 1899 as a market stall selling eggs and butter to customers in Bradford, northern England. In 1961, Ken Morrison opened the first in what has grown to a chain of 489 supermarkets across Britain. The company went public in 1967.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net; Kiel Porter in London at kporter17@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net


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