he FTSE 100 Index was set to fall sharply today despite a takeover bid for Morrisons sparking hopes of a new rash of private equity takeovers of UK plcs.
Wall Street’s sharp fall on Friday night was likely to spill over to London, getting the week off to a negative start, falling below the 7000 mark.
Asian markets fell heavily this morning, with the Japan leading the decline, down more than 3%.
Supermarket giant Morrisons at the weekend rejected a bid from Clayton Dubillier & Rice priced at 230p – a 29% premium to the grocer’s share price on Friday night.
The board declared the offer – fronted by former Tesco chief Sir Terry Leahy – “significantly undervalued” the business.
Its shares were expected to race ahead today as various analysts proposed what they considered would be a knockout price, with some saying shareholders would want the board to at least engage in talks at 245p with 280p being likely to win support.
Morrisons has been wargaming such an approach with its advisers at Rothschild for months, The Times reported, as its moribund share price made an approach all-but inevitable.
David Potts, the chief executive, has turned the business around since arriving in 2015 but the markets have failed to appreciate “bricks and mortar” grocers, preferring to back online players like Ocado and Amazon in the hunt for share price growth.
It raises the prospect of other takeover approaches from wealthy private equity funds, which have built up warchests of billions of pounds from pension funds and other investors hunting for returns in the current low-interest rate environment.
Fresh bids could come in for Morrisons and rivals Tesco and Sainsbury, some speculated.
There have already been some 123 public-to-private takeovers since the start of the year and shares in grocers are likely to gain after the Morrisons tilt.
READ MOREIt’s both good and bad that activist investors are swarming into LondonMorrisons rejects conditional £5.5 billion takeover proposalElsewhere, though, financial markets remain jittery at such high levels for stock markets across the world. Today was set to be a negative day, with the FTSE 100 being called down 48 points to 6962.
Markets have been reacting over recent days to the shift in the US Federal Reserve’s tweak last week bringing forwards the likely timing of its tightening of super-low interest rates.
St Louis Fed president James Bullard said he was leaning towards recommending a rate rise in 2022, which served to undermine the Fed’s consistent narrative of lower-for-longer.
The Fed change was only reflecting what many investors have been saying for months; that the US economy was heating up too fast for the current Fed policy stance to be sustainable.
Until now, the central bank has held the line on its argument that it has to keep things easy until unemployment fall significantly. There are still millions more Americans unemployed now than there were before the pandemic struck.
But the picture is muddied because there are also millions more unfilled job vacancies, which both confuses the labour market picture and suggests wage inflation could be on the way as employers increase pay rates to attract workers on board.
