The US private equity firm Apollo Global Management has pulled out of the bidding war for Morrisons and is looking to join a consortium led by US rival Fortress which has offered £6.3bn to buy the British supermarket group.
The New York-based Apollo, which confirmed it was considering a bid for Morrisons earlier this month, said it would no longer be making an offer for the grocer.
Instead, bosses said they were in early discussions with the rival US private equity firm Fortress, which owns Majestic Wine, to become part of its consortium to acquire Morrisons.
Morrisons, which operates 500 stores and employs about 118,000 staff in the UK, announced in early July it would sell itself to the Fortress-led consortium in a deal valuing the grocer at £6.3bn. Fortress and its partners would also take on debt worth £3.2bn.
The offer from Fortress, along with Canada Pension Plan Investment Board and Koch Real Estate Investments, exceeded a £5.5bn unsolicited proposal from Clayton, Dubilier and Rice, which Morrisons swiftly rejected in June. Fortress is owned by Japan’s SoftBank. CD&R has until mid-August to come back with a higher offer.
Apollo said the discussions “may result in funds managed or advised by Apollo forming part of the investment group led by Fortress for the purposes of the Fortress offer. As a consequence of these discussions, Apollo confirms that it does not intend to make an offer for Morrisons other than as part of the Fortress offer.”
It added: “Apollo notes Fortress’s intentions regarding the Morrisons business and all its stakeholders …Should these discussions lead to any transaction, Apollo would be fully supportive of Fortress’s stated intentions regarding Morrisons.”
Morrisons is an attractive takeover target because it owns most of its stores’ freeholds and has long-term relationships with farmers and suppliers, as well as its own food manufacturing sites and even its own fishing fleet. But its online business is smaller than that of its rivals and heavy investment in expanding its delivery services hit profits during the pandemic.
Politicians in the UK have raised concerns about the takeover and said any new owner could strip assets and reduce the rights of workers.
Fortress has stressed it intends to continue operating with the same management team, did not sell any of its freehold or long leasehold properties after it bought Majestic Wine in 2019 and “does not anticipate engaging in any material store sale and leaseback transactions” at Morrisons.
Morrisons has written to UK farmers to reassure them that Fortress would be a “suitable and responsible owner” and that its pledges about the future of the company “carry genuine weight”.
Sophie Lund-Yates, a senior equity analyst at Hargreaves Lansdown, said: “Apollo is laying down its weapons and potentially joining forces with the Fortress-led syndicate. From a shareholder perspective this is disappointing, because it takes the heat out of a potential bidding war, meaning the cash offer already on the table is less likely to get pushed upwards.”
