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On 3 July 2021, Wm Morrison Supermarkets plc (Morrisons) that it had agreed the terms of a £6.3bn recommended cash offer from a consortium led by SoftBank-owned Fortress Investment Group, LLC (Fortress). The offer would see shareholders receive £2.54 per share (inclusive of a £0.02 cash dividend) and represents a 42% premium to the closing price on 18 June 2021. Other parties to the consortium include Toronto-headquartered investment manager Canada Pension Plan Investment Board and the real estate division of US giant Koch Industries, Koch Real Estate Investments, LLC.

At £6.3bn, the offer overwhelmingly tops the highest deal value seen so far in 2021, previously being the £3.5bn offer for Signature Aviation (see: Global Infrastructure Partners take the lead on Signature Aviation bid). The offer also represents the growing trend of both P2P transactions (73% of all firm offers in H1 2021) and P2P transactions being structured as consortium bids, which will be discussed further in our upcoming Public M&A H1 2021 Trend Report.  

Fortress is not the first private equity firm to approach Morrisons and it would not be surprising if the company soon found itself the subject of a bidding war. Just last month, the board rejected a £5.5bn possible offer from US private equity firm Clayton, Dubilier & Rice (CD&R) on the grounds that the offer significantly undervalued  the company (see: Clayton, Dubilier & Rice sets out to stock up on UK supermarket Morrisons). Following the announcement of Fortress’ recommended offer, on 5 July 2021 Apollo Global Management, Inc. (Apollo)  that it was in the preliminary stages of evaluating a possible offer for Morrisons. News of the recommended offer from the consortium led by Fortress and Apollo’s potential approach saw Morrisons’ share price rise by 11.56% on close of business on 5 July 2021, representing a 50% increase since 18 June 2021 (one day prior to announcement of CD&R’s offer). CD&R has until 17 July 2021 to increase its offer or withdraw its interest and the deadline by which Apollo must clarify its intentions is to be announced.

Another trend observed in H1 2021 is increased shareholder engagement on takeover transactions. Morrisons has a 87% freehold store portfolio worth a £5.78bn, so it may be no surprise that it has caught the attention of private equity firms given the potential to unlock large amounts of capital via the sale and leaseback of its real estate portfolio. Legal & General Investment Management appeared sceptical of the bid and warned against returns being generated from sale-leaseback transactions of the company’s freehold estate. In the offer documentation, Fortress made assurances that it did not anticipate any material changes with Morrisons’ suppliers, benefits provided by pension schemes or to engage with material store sale and leaseback transactions. It was however also noted that a fuller evaluation of Morrisons’ operations and structure would have to be completed within six months of the offer becoming effective. Business secretary Kwasi Kwarteng will reportedly meet with Morrisons over the accepted offer.

Shareholder influence was seen again this week, following the of an increased offer for Spire Healthcare Group plc (Spire) on 5 July 2021, valuing the company at £1.04bn at £2.50 per share. Ramsay Health Care Limited (Ramsay) had previously submitted a valuing Spire at £999.6m at £2.40 per share which was recommended by the board (see: Foreign bidders snap up the FTSE Main Market). The increased offer follows from opposition voiced by institutional investors Fidelity International and Toscafund Asset Management. Prior to announcement of the increased offer, proxy advisory firm, Glass Lewis, had also produced a report urging shareholders to reject the offer, and maintained their position following an update to the report on 7 July 2021 following news of the increased offer. Spire to Glass Lewis on 8 July 2021, and urged shareholders to accept the offer. The upshot of this increased engagement has been a slight hit to Spire’s trading price. Spire’s share price had risen to £2.45 back in May following announcement of the initial offer and the company had continued to trade around this level, with shares falling to £2.41 at close of business on announcement of the increased offer, and to £2.24 at close of business on 8 July 2021.   

For more on the trends and developments in the public M&A market in 2021, see our upcoming H1 2021 Market Tracker Trend Report, to be published in the coming weeks.