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Apollo joins Softbank-backed Fortress in the race to buy a British supermarket chain

To buy a British supermarket chain, Apollo joins Softbank-backed Fortress

July 6, 2021: -Wm Morrison, Britain’s fourth-largest supermarket chain, could be about to become the target of an international bidding war. On Monday, Apollo Global Management announced it was mulling a rival bid for the retailer after it agreed on an $8.7 billion takeover deal with SoftBank-owned Fortress Investment Group.

Apollo said it was in the preliminary stages of evaluating a potential bid but had yet to approach Morrisons’ board.

The board recommends a 254 pence per share cash offer from a consortium led by Fortress on Saturday, including Canada Pension Plan Investment Board and Koch Real Estate Investments. The offer values the company for £6.3 billion.

The bid exceeded a previous unsolicited approach from U.S. private equity firm Clayton, Dubilier & Rice, which Morrisons rejected last month. 

However, Morrisons’ eighth-largest shareholder, JO Hambro, said it would want to see an offer of at least £6.5 billion for the company last week.

The three largest shareholders, Silchester, BlackRock, and Columbia Threadneedle, cumulatively account for more than 35% of shares and have yet to comment on the Fortress proposal publicly.

On Monday, Morrisons shares surged more than 11% as the race heated up, while the stock of fellow British supermarket groups Sainsbury’s, Marks & Spencer, and Tesco also went up higher.

On Monday, Barclays analysts highlighted two significant reasons why the private equity firm may be able to justify paying above the agreed Fortess’s offer.

“Firstly, CD&R has an even bigger retail footprint in the U.K. than Fortress, and the former owns the MFG chain of petrol forecourts, the latter owns Majestic Wine, so we expected CD&R to be able to generate bigger synergies with Morrison,” Barclays Managing Director of European Retail Equity Research, James Anstead, said. 

“Secondly, Fortress has indicated that it does not plan to undertake material sale and leaseback activity concerning Morrison’s store estate, Clayton, Dubilier, and Rice might be able to afford to bid more if it chose to explore such real estate activities.”

However, Bank of America analysts highlighted that the Koch Real Estate’s involvement in the Fortress-led consortium deal suggests it could be considering store sales or leasebacks after all.

“Morrisons owns above 80% of its real estate, and we would expect any new owner to investigate the potential for value creation within the property,” they added.

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