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Would I buy the WM Morrison share after its price spike?

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Young woman with face mask using mobile phone and buying groceries in the supermarket during virus pandemic.
Image source: Getty Images

WM Morrison Supermarkets (LSE: MRW) shares are the highlight of today’s trading. The FTSE 250 grocer is up more than 11% as I write. Its share price is at around 267p, a level that was last seen in 2018.

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The story so far

The supermarket chain received an offer from private equity firm Clayton, Dubilier & Rice (CD&R) a couple of weeks ago. While that was rejected, it received another bid over the weekend. A clutch of investors, led by the Fortress Investment Group, has put a higher price on it at 254p. This is a 10.5% higher price than the offer first proposed by CD&R. It has been accepted by Morrisons. 

Then earlier today, news broke that another private equity group, Apollo, is looking to bid for the company too. Another bidder in the fray can mean an even higher price. So it is no surprise that, in the meantime, the Morrisons share price has skyrocketed, possibly on speculation of an even higher buyout price. It is up by some 6% from the already agreed upon buyout price in today’s trading. 

What I can do now

If I value Morrisons significantly higher than the current price, there is a case to make a speculative purchase. But we at the Motley Fool encourage long-term buys, not get rich quick schemes, like this right now. 

There is one more reason for me to consider buying the share. And that is if I do not expect that the deal will go through. Potential deals fall through all the time. And who knows, this one may too. 

If it does, and Morrison goes back to trading at the share price it was at before all the speculation started, I think there is a case for buying the stock. I was bullish on it when I last talked about it at the start of the year. I have no reason not to be so now. 

Its story has not changed since. Its latest trading update released in May was relatively upbeat. It reported an increase in sales for the 14 weeks to May 9. Encouragingly, its online sales were up too, which suggests a continued pivot towards e-shopping. It also has a positive post-Covid-19 outlook

Up in the air

Despite the fact that supermarkets are a competitive business, where margins run the risk of being squeezed, the Morrisons share price was due for some recovery in my view. But that was before the buyout speculation increased it significantly. In the event that all the buyout activity ultimately comes to nothing and its share price goes back to where it was earlier, I would consider buying the stock. 

However, these are big ifs. For now, it appears that the supermarket will be sold sometime in the near future. And I do not want to get my fingers burned while there is so much activity around the stock.

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Manika Premsingh 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.

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