The Morrisons (LSE: MRW) share price is rallying at the moment with a current rise of around 6% in the last month. In fact, the share price has been gaining momentum for the past year, with an increase of 51%.
The intense bidding war over Morrisons has taken another step with an accepted investment from buyers Clayton, Dubilier & Rice (CD&R). The confidence from investment groups has been driving the share price higher.
However am I too late to the table to buy Morrisons shares? Here, I examine whether the Morrisons share price has hit its peak or if it will continue to grow.
Overview of the Morrisons bidding war
Two main investors are competing to take over the fourth-largest UK supermarket chain. They are CD&R and Softbank-owned Fortress Investment Group. CD&R’s first bid of £5.5bn was rejected back on 17 June, then Fortress returned with a higher bid of its own of £6.7bn. Morrisons delayed its decision on whether or not to accept this bid by calling for a shareholder vote. Now CD&R have returned with an even higher bid of £7bn, which has been accepted by Morrisons.
CD&R’s offer is valued at 285p per share. However with the Morrisons’ share price continuing to grow, it is likely that the story isn’t over yet. British takeover laws allow Fortress to submit a further bid. If Fortress were to up its bid, I am convinced that CD&R would be willing to do whatever it takes to win this bidding war. I’m basing this on the fact that CD&R’s bid is being led by former Tesco chief executive Sir Terry Leahy, who has the experience to identify promising opportunities in the industry. He is one of the main reasons behind Tesco’s rise to becoming the number one supermarket chain in the UK.
Risks and concerns
One concern I have as a potential buyer of Morrisons shares is that I could be too late to buy. The share price is currently overvalued with a price-to-earnings ratio of 73.07. If no further bids come through the door then the share price might stagnate. There could even be a price correction, which would hurt an investment made at this current price.
Morrisons will also have to compete with strong competitors such as Tesco and Sainsbury’s. Major corporations like these could limit the potential that Morrisons has for growth.
Is it too late to buy Morrisons shares?
The bidding war could very well continue as the share price is seemingly still growing. If this is the case, I think the Morrisons share price could continue to gather momentum and speculation as the bids get higher and higher.
However, this would mean making an investment based on the assumption that further bids will be made. Also, the current P/E is very high, especially when compared to its competitors such as Tesco. I will have to see this share price drop before I become interested in buying.
