The Motley Fool

Morrisons share price soars on takeover bid! Here’s what I think will happen now

Image source: Getty Images.

The Morrisons (LSE:MRW) share price soared after it rejected a takeover approach from US private equity firm Clayton, Dubilier & Rice (CD&R). The bidder offered to pay 230p a share in cash, a 29% premium to Friday’s closing price of 178p.

Rejecting the offer clearly means that the board believes the business is worth more. It looks like share buyers might think the same. On Monday, the Morrisons share price climbed to 240p.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Where next for the Morrisons share price?

The rejection could lead to a higher bid. This could potentially lead to further gains for the Morrisons share price. New York based CD&R has until 17 July to make a firm offer or walk away.

A word of warning, however. If the bidder walks away, the Morrisons share price could be at significant risk if no other bids are put forward.  

But other parties may well get involved to snap up this leading UK food retailer. This could potentially lead to an exciting bidding war scenario, possibly pushing the Morrisons share price higher. Amazon is already a Morrisons partner and is looking at expanding its retail offering so there has been speculation around its intentions.

A deal with the other major UK supermarkets is unlikely, however, I feel. The competition regulator is likely to reject any approach from the likes of Tesco or Sainsbury’s. A few years ago, the competition watchdog ruled against a tie-up between Sainsbury’s and Asda, saying it could reduce competition and choice, and increase prices.

Supermarket sweep

It’s worth noting that private equity firms face no such barrier. They may see UK food retailers as attractive assets. Morrisons owns a significant amount of freehold property. It’s also a popular brand that generates plenty of cash.

And although Morrisons’ share price saw limited gains before the bid, the food retailer provided a respectable and relatively generous 5% dividend.

The whole food retail industry is facing several challenges. It’s becoming increasingly competitive. The popularity of discount supermarkets Aldi and Lidl has put pressure on the ‘Big Four’ (Tesco, Asda, Morrisons and Sainsbury’s) to lower prices. Also, food delivery is now a popular option for many customers, putting pressure on retailers’ profit margins.

The future is uncertain. New entrants like Amazon could really change the game with checkout-free stores and potential future deliveries by drone. Perhaps the sector is ready for some changes.

But would I buy Morrisons today? I’m a long-term investor so I think that although the Morrisons share price could drift higher, I’ll be watching from the sidelines as the bid news plays out and won’t be buying on this occasion.

Not just food for thought

Current private equity interest won’t be restricted to UK supermarkets alone, in my opinion. From a global perspective, UK shares feel unloved and undervalued. Since the Brexit vote, they’ve generally traded at a discount to US peers, for example. Uncertainty surrounding the post-Brexit trading environment has kept investors away. 

But things may be changing as undervalued UK shares become attractive to global investors for a post-pandemic world.

I’d love to know which UK companies private equity firms might be interested in next. I reckon sofa retailer SCS could be of interest. It’s cheap with bags of cash on its balance sheet. If I ran a private equity firm, that’s where I’d look.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harshil Patel owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Morrisons and Tesco and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.