Jun 21, 2021

Analysts expect more bids for Morrisons

Analysts believe Wm Morrison will remain in play after it rejected a private equity offer that valued the UK's fourth-largest grocer at an enterprise value of £8.7bn. US private equity firm Clayton, Dubilier & Rice is expected to push ahead with its pursuit having had its initial approach rebuffed over the weekend. Barclays analysts said: "Our inclination is to think that CD & R's unsolicited conditional offer is unlikely to have been pitched at the maximum it could theoretically justify paying. At the same time, we tend to think Morrison's management may struggle to explain to the market what it can do differently as an independent company to keep the share price at 230p or better. On this logic, we tend to think that the story is unlikely to have ended with Morrison's rejection of the conditional proposal." "If Morrisons were to be taken private, its focus . . . would likely shift to debt servicing in our view. Tesco and Sainsbury could emerge as stronger businesses with greater market share over time in such a scenario," it said. JPMorgan Cazenove argued that CD & R's rejected offer already valued Morrisons highly at about 17 times earnings, which compared with Asda's recent buyout at 9.5 times earnings. Repeating an "Underweight" rating on Morrisons, JPMorgan said: "While we would clearly argue Morrisons deserves to trade at a valuation premium over Asda, a premium of circa 50 per cent appears excessive."

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