Shareholders in WM Morrison Supermarkets (LSE: MRW) are having a great summer. The Morrisons share price has soared since June, when the first of several bids for the supermarket arrived. Indeed, Morrisons is the FTSE 350 index’s second-best performer over the past three months. But, with important news breaking this morning, could this stock go even higher and would I buy today?
The Morrisons share price surges
After Covid-ravaged 2020, the Morrisons share price ended last year at 177.35p. This left the shares down 22.45p — or 11.2% — since 2019. For most of the first half of 2021, Morrisons’ stock drifted along, remaining range-bound roughly between 170p and 190p.
On Friday, 18 June, the Morrisons share price closed at 178.45p. On 21 June, came an unsolicited offer for the company from US private equity firm Clayton, Dubilier & Rice (CD&R). It offered 230p a share in cash — a premium of 28.9% to Morrisons’ previous closing price. This initial offer triggered a bidding frenzy as several groups expressed interest in buying the UK’s fourth-largest supermarket.
After back-and-forth bidding, the latest bid arrived Friday. This board-recommended offer came from a trio consisting of SoftBank-owned Fortress, Canadian pension fund CPPIB, and a division of US-based Koch Industries. It valued each Morrisons share at 270p, plus a special cash dividend of 2p, totalling 272p per share. This valued the group’s equity at £6.7bn, roughly £400m more than the trio’s original bid unveiled on 3 July. As I write (Monday lunchtime), the Morrisons share price stands at 278.64p, or 6.84p (2.5%) higher than the best bid so far. However, this bidding battle may not be over just yet.
The drama continues until 20 August
On 22 July, the UK Takeover Panel ruled that original bidder CD&R had until 5pm today to make an increased offer for Morrisons or withdraw. However, on Friday, Morrisons adjourned until 27 August its shareholder meetings to approve the Fortress offer. As a result, the Takeover Panel this morning extended CD&R’s deadline to 5pm on 20 August. Thus, CD&R — and any other bidder — has 11 days to come up with an improved bid or quit the race. This explains why the Morrisons share price trades at a modest 2.5% premium to the value of the latest bid.
As I wrote earlier, the current ‘live’ bid of 272p a share values Morrisons at £6.7bn. Adding in £3.2bn of net debt takes this total to £9.9bn — very close to a nice, round £10bn. This would be the the largest private-equity buyout of a UK-listed business since 2007 (when US financier KKR bought high-street chemist Boots). But the game might not be over just yet. I imagine that both bidders may have considered a knockout bid above £10bn, so there could be further offers to come. And any improved bids might push the Morrisons share price still higher.
Two more things. First, if a new bidder emerges, then the 20 August deadline would lapse, the takeover clock resets, and the countdown begins again. Second, the Takeover Panel could intervene by holding an auction for the Bradford-based supermarket. This happened just this morning in the bidding war for another UK-listed business (inhaler company Vectura). In short, this supermarket battle is not yet over. Indeed, it’s entirely possible that the Morrisons share price might even peak above £3! But, given the limited upside, I don’t own the shares and wouldn’t buy at the current Morrisons share price.
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.