The Morrisons (LSE:MRW) share price has been moving like a rollercoaster recently. Despite slowly heading in a downward trajectory over the last five years, the stock has skyrocketed by around 50% over the last couple of weeks. The valuation is now at levels not seen since 2013. What caused this sudden growth? And is it too late for me to add this business to my portfolio?
The surging Morrisons share price
The explosive growth started in mid-June following a takeover bid from Clayton, Dubilier & Rice (CD&R). The private equity firm tried to acquire the whole business for £5.5bn. Seeing the share price jump to match the offer is not that surprising. But after some deliberation, the management team firmly rejected the bid. They said the “Conditional Proposal significantly undervalued Morrisons and its future prospects”.
In my experience, a rejection of the first takeover bid is often followed by a higher bid by either the same or another firm. Personally, I had my doubts about another offer materialising given the size of the deal. However, it seems I was wrong on that one. Oppidum Bidco (a newly formed company indirectly owned by Fortress Investment Group) has just made a bid for £6.3bn that Morrisons has recommended.
This second bid again sent the Morrisons share price flying even higher. And it’s now trading around 265p per share. However, what’s odd is that the acquisition price (which has yet to be approved by shareholders) stands at 254p. So why is the share price higher?
What’s next, and what are the risks moving forward?
It seems that investors are convinced that yet again, another higher bid will be made for Morrisons. This has yet to be seen. But private equity firm Apollo Global Management has announced it’s in “the preliminary stages of evaluating a possible offer for Morrisons”. Meanwhile, there are rumours that Amazon may be looking to expand its existing grocery partnership with Morrisons into a full-blown acquisition.
Needless to say, if another larger offer were to be made, then the Morrisons share price could continue to climb. But to me, this is starting to look like speculation rather than investing. There’s no guarantee that another offer will be made. Not to mention that even if shareholders approve Oppidum Bidco’s offer, the deal may still not go through.
The bottom line
Overall, my opinion on the business remains largely unchanged. The management team’s ability to adapt to rising competition and new shifts in consumer behaviour with home delivery has allowed the company to retain its market share and reward shareholders with a sizable dividend.
Therefore, if an acquisition doesn’t happen, the subsequently falling Morrisons share price could be an attractive buying opportunity for my portfolio. However, at its current price, I don’t see much upside potential left. I won’t be buying any shares today.
