Among the traders in at the bustling Oastler marketin Bradford, Sir Ken Morrison is remembered as an “icon”.
He took over his father’s egg and butter stall at the city’s former Rawson market in 1952 and over the next 50 years turned it into the multi-billionpound Morrisons supermarket chain.
But there are strong words about the executives who now run Morrisons and even stronger ones about the private equity titans vying to buy the chain, which has 497 stores across England, Wales and Scotland, employees 118,000 people and serves 9 million customers a week.
One trader said: “[Sir Ken] knew exactly what the customers wanted, which was just good, cheap produce, but none of the executives who have come after that have understood that.
“Some of these guys wearing suits never interact with customers, they don’t understand why people choose to go there. Ken did.”
She said she hoped news of a takeover would spur people into shopping more locally enabling her to build her business.
“These big American companies don’t care about people in Bradford. They only care about getting a solid 15% profit margin each year for shareholders. People don’t realise that. I hope people lose loyalty for [Morrisons] now a lot of the money is going abroad, but I bet they won’t.”
Morrisons is faced with its own reckoning, as two private equity bidders jostle to buy it, in the latest example of US financial firepower taking a UK-listed business private.
Last week, the chain recommended shareholders back a bid by Clayton Dubilier & Rice that would value the supermarket chain at £7bn (or £9.7bn including debt). CD&R, one of the oldest US private equity firms, had opened the bidding at £5.5bn – a level rebuffed by the Morrisons board as too cheap. Fortress, a rival, had successive offers of £6.5bn and £6.7bn accepted by the supermarket, only to be gazumped. Fortress is still considering whether to better CD&R’s offer, while yet another US private equity firm, Apollo, is also sniffing around.
The Morrisons bid battle has added to perceptions that Britain’s choicest corporate assets are up for sale to the highest bidder – with US private equity buyers at the front of the queue.
The bids raise the likelihood of a break-up of a business that still retains the stamp of its late founder – a FTSE 100 business that has kept something of its local character and a farm-to-fork model that sets it apart from supermarket rivals.
And coming amid a spate of takeovers, it has heightened concerns that Britain is too open to foreign predators – no matter how strategic the business.
US private equity funds have made 65 UK acquisitions in the past 12 months, up 57% in a year, according to analysis by the American law firm Mayer Brown. Mid-sized companies that have been subject to private equity takeovers or bids include the retirement communities developer McCarthy & Stone, the infrastructure builder John Laing and the property developer St Modwen. Yet to be completed takeovers of defence and aerospace companies Meggitt and Ultra Electronics have caused consternation among some politicians, particularly Labour, about selling Britain’s crown jewels.
Thanks to the flood of cheap money and ultra-low interest rates, the once-staid business of selling groceries, for years a cut-throat world of low profit-margins, has become prime hunting territory for the buyout barons. Asda was bought this year from its previous owners Walmart in a private equity-backed deal, while shares in Sainsbury’s soared this week after reported takeover interest from the US investment firm Apollo. Even Tesco, the market leader, is not too big to be snapped up by a private capital heavyweight, according to Clive Black, an analyst at Shore Capital.
The value buried in those integrated assets is a key factor in the bidders’ calculations, said William Woods, an equity analyst at the investment bank AllianceBernstein. His modelling suggests Morrisons will need to sell north of £1.5bn of assets for the bidders to make their returns.
The bidders, he added, “will assess the opportunity across all areas of the business, including Morrison’s property portfolio, fuel forecourts and convenience retail network”.
The higher the bid, the more pressure for asset sales, Woods said, and the owners may question whether Britain’s fourth-biggest supermarket needs to own its own food production assets. They include a factory producing bacon and quiche on the outskirts of Bradford among 18 different operations that range from abattoirs to makers of flower bouquets.
Another key contender for asset sales are Morrisons’ estate of about 340 petrol stations. It has roughly the same number of forecourts as Asda, which were sold for £750m.
Stung by past experience of private equity takeovers, the Labour party and unions have called for assurances that major job losses will not be part of the plans.
CD&R has promised to respect the “strength of Morrisons’ heritage” and “the legacy of Sir Ken Morrison”. It has pledged to keep the headquarters in Bradford, as well as not engaging in “material store sale and leaseback transactions” – a common tactic for private equity buyers looking to generate cash.
The Wool Exchange Building in Bradford. Photograph: Rob Ford/Alamy Stock Photo
‘Morrisons is hugely intertwined with how we see ourselves’
What happens next matters hugely in West Yorkshire, with 5,350 employees in Bradford, including 2,700 at head office. Overall, more than one in every 50 jobs in the Bradford district is with Morrisons. There, people are concerned the move will mean the historical connection with the city is severed, with economic and cultural losses.
Susan Hinchcliffe, the leader of Bradford council, said Bradford was very proud to be the home of Morrisons, and to consider it an economic partner. “Psychologically for us as a city, Morrisons is hugely intertwined with how we see ourselves,” she said.
According to Morrisons’ annual results for 2019-20, the retailer donated £3.9m to more than 620 charities across England, Scotland and Wales. During the pandemic it was praised as one of the first big companies to make substantial donations when it became clear food banks were under strain.
It has pledged to give workers Boxing Day off this year as a reward for their work during the pandemic. These are the kinds of things local resident worry will be lost.
Amy Tyson from Bradford Central Foodbank described Morrisons as its “most reliable” donor, receiving hundreds of kilograms of food a week.
“If we didn’t have those donations from Morrisons we’d really, really struggle. If we didn’t have them donating so regularly, we wouldn’t be able to feed as many families as we have done,” she said.
When the CD&R deal was announced, Morrisons’ chairman, Andrew Higginson, wrote to the council to say he had been given assurances from the purchaser that the retailer’s relationship with Bradford would not change.
But Hinchcliffe said: “The proof is in the pudding, you don’t know until you start working with the new owner.”
Bradford had given plenty to Morrisons in return over the years, she continued. “I think there are commercial reasons for their investment in Bradford, as well as altruistic ones and I would like to think that any new owner would realise that.”
Naz Shah, the MP for Bradford West, said the takeover was “a real concern”, though CD&R had a good track record for keeping businesses intact.
She has asked for a meeting with Morrisons to reassure her constituents that jobs and pensions will be safeguarded, and she said she would push for parliamentary and legislative scrutiny of the deal.
Yet corporate lawyers are sceptical that assurances from the business can be enforced. Kraft Heinz was criticised by the Takeover Panel in 2010 for reneging on similar promises to keep a Cadbury’s factory open, but the regulator can impose no stronger penalty than a bruised reputation. Assurances are backed by not much more than an “old boys’ club” sense of fair play, said one City lawyer.
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The government has powers to enforce commitments in some regulated sectors such as defence, banking and telecommunications. But a No 10 spokesperson has said Morrisons is a “commercial matter”.
“Nods to heritage and legacy should be treated as just that,” wrote Neill Keaney, an analyst at the debt rating agency Creditsights.
means the lucrative tactic of selling stores and leasing them back, which generates huge amounts of cash for the new investors almost overnight and saddles the business with higher annual rental costs in perpetuity, could still be on the agenda.
People close to the CD&R bid insist the firm has no reason to renege on its commitments, but plenty of buyout merchants have said that before and later found the need to make a quick return trumps long term investment in their new acquisition.