Clayton Dubilier & Rice LLC is weighing a bid for U.K. grocery chain Wm Morrison Supermarkets Plc, according to people familiar with the matter.
The American buyout firm is in the early stages of evaluating a takeover bid, said the people, who asked not to be identified because discussions are private. CD&R is interested in expanding in the grocery sector, the people said, adding that no final decision has been made and considerations may not lead to a formal offer. Representatives for CD&R and Wm Morrison declined to comment.
Private equity investors are seeking to capitalize on the improving fortunes of leading supermarket chains after lockdowns triggered a surge in in-store and online grocery spending. Morrison and competing U.K. supermarkets including Tesco and Sainsbury’s appear to have weathered the reopening of restaurants well, suggesting that consumer habits may have permanently shifted in their favor.
Sky News reported earlier that CD&R is evaluating a 5.5 billion-pound ($7.6 billion) bid, citing people familiar with the matter who it didn’t identify. The buyout firm has approached banks about financing the potential bid and made a preliminary approach to the retailer’s board, Sky reported.
Britain’s grocery sector has been beset with merger activity in the last few years amid a highly competitive market that has been disrupted by the growth in online grocery shopping and the German discounters Aldi and Lidl. Britain’s third largest grocer, Asda, was recently taken over by consortium of TDR Capital and the Issa brothers in a 6.5 billion pounds deal. Walmart, the U.S, retailer, which owned Asda since 1999 retains a minority stake.
The Asda transaction came two years after regulators blocked a previous attempt by Walmart to sell the business to the U.K. grocer’s bigger rival, Sainsbury. Elsewhere in Europe, Carrefour also faced a short-lived takeover attempt by Canada’s Alimentation Couche-Tard Inc. That effort was torpedoed by the French government which took exception to one of the country’s biggest supermarkets falling into foreign hands.
Morrison for many years was the laggard of the four big grocers in Britain, but in recent years has revived under the leadership of Chief Executive Officer Dave Potts. The grocer owns most of its own supermarkets meaning it has a very valuable property portfolio and also owns a number of abattoirs and other manufacturing facilities as it makes a lot of the food it sells.
The potential bid comes at a challenging time for the Morrison’s board, which suffered a stinging rebuke from shareholders over executive pay last week. Just over 70% of investors voted against the proposal — in one of the largest protest votes ever against a company’s pay report — but the awards will still be made because the vote wasn’t binding.