Morrisons (LSE:MRW) has seen a surge of attention recently amid a takeover effort. Here’s my take on the recent Morrisons share price activity and what I am doing right now in relation to my portfolio.
Takeover bid sparks share price rise
The Morrisons share price surged in June when Morrisons received a takeover bid from Clayton, Dubilier & Rice (CD&R). The private equity firm bid £5.5bn for the business. It’s not unusual to see a share price jump to match the offer of a takeover. Ultimately, the offer was rejected.
As I write, the Morrisons shares are trading for 280p per share. On 18 June, shares were trading for 178p per share. That means the Morrisons share price has jumped 57% in less than two months. At this time last year, shares were trading for 196p per share, which is 42% less than current levels.
What happens next with the Morrisons share price?
It is not uncommon that when a first bid of a takeover is rejected, a second bid is made. Other parties also come to the table. Last week, the latest offer, backed by the Morrisons board and fronted by SoftBank-owned Fortress, was submitted. It consisted of valuing each share at 270p plus a special 2p dividend per share. This values the business at just under £7bn and with approximately £3.2bn worth of debt, it all adds up close to a sum of £10bn.
The Morrisons share price has been meandering upwards since June. The UK Takeover Panel ruled the original bidder, CD&R, had until 5 pm on Monday to increase their offer or withdraw from the race. Prior to that date, however, on Friday, the Morrisons board adjourned its shareholder meetings until 27 August to approve the counter offer from Fortress. In response, the UK Takeover Panel extended CD&R’s deadline until 20 August.
I believe there is every chance one of the firms will offer more than the £10bn amount and potentially win the race. The issue I have is that if another bidder emerges, the takeover clock resets. There is also the chance the Takeover Panel steps in and holds an auction for Morrisons. I believe one way or the other, the Morrisons share price could surpass 300p per share mark.
What I’m doing now
At current levels, investing in Morrisons could mean one of two things for my portfolio. It could be a costly error if I add shares to my portfolio and a takeover doesn’t happen or the takeover happens at less than its current price. Secondly, it could be a great success if I buy shares and let the two firms battle it out and even potentially go to auction and that results in an increased share price, meaning I receive more money for my shares.
Ultimately, I believe the Morrisons share price will rise further, but I am not willing to risk my money right now and be at the mercy of competing firms in a takeover battle. I will watch with interest, however.
Jabran Khan has no position in any 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.