FTSE makes gains after Morrisons takeover speculation boosts grocers

FTSE makes gains after Morrisons takeover speculation boosts grocers
Usdaw and the shadow minister for business have also expressed concerns about private equity ownership of UK grocers.
// Morrisons shares soar by 34.6%, or 61.75p, to 240.2p by close on Monday after it rejected a £5.5bn takeover attempt
// The move also helped drive rivals Ocado & Sainsbury’s towards the top of the FTSE 100
// The FTSE closed 44.82 points higher, or 0.64%, at 7062.29 on Monday

Buoyant supermarket stocks lifted the London markets as a £5.5 billion private equity approach for Morrisons sparked the sector into life.

Morrisons rejected the move but saw its shares soar by 34.6 per cent, or 61.75p, to 240.2p by close on Monday as investors predicted a bidding war could be on the horizon.

On Sunday, Morrisons said it had been sent an “unsolicited, highly conditional, non-binding proposal” from Clayton, Dubilier & Rice (CD&R), a New York-based private equity firm.


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It rejected the offer after the board “unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects”.

However, this has not been enough to put off prospective bidders and on Monday it appeared that shareholders thought CD&R – or perhaps another suitor – might return with a higher bid.

CD&R’s takeover attempt helped drive rivals Ocado and Sainsbury’s towards the top of the FTSE 100 amid a general feeling that the takeover move was driven by broadly low valuations in UK grocery.

Shares in Tesco also enjoyed a boost in the wake of the takeover attempt of Morrisons.

London’s top flight closed 44.82 points higher, or 0.64 per cent, at 7062.29 on Monday.

“While the bid was rejected it has given the entire sector a boost in anticipation of a bidding war, not only for Morrison but also for the likes of Sainsbury which has outperformed this year due to Czech billionaire Daniel Kretinsky increasing his stake in the business, while Tesco has become much cheaper since it returned over £5 billion to shareholders in February,” CMC Markets UK chief market analyst Michael Hewson said.

“The renewed interest in this sector is likely to be painful for the short sellers, and short positions in Sainsbury’s in particular, however few will shed many tears about that, as this undervalued sector undergoes renewed scrutiny.”

Ocado was boosted by the acquisition chatter and also benefited from an upgrade from brokers at Morgan Stanley.

The online retail firm closed 76p higher at 1957p to sit at a one-month high.

Meanwhile, Sainsbury’s went up 10p to 270.1p.

CD&R’s bid for Morrisons also sparked speculation that the UK’s grocery giants might also draw interest from big investors who have the resources to take the supermarkets private.

Both Usdaw and the shadow minister for business, Seema Malhotra, have expressed concerns about private equity ownership of UK grocers, especially in regards to potentially stripping grocer’s assets and slashing jobs in the process.

Any deal for Morrisons or the other supermarkets would follow the £6.8 billion buyout of Asda by the billionaire Issa brothers, which was approved by the competition watchdog last week.

with PA Wires

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