Morrisons shares surge after takeover offer despite doubts over prospect of rival Amazon bid

upermarket shares raced up today after US private equity giant Clayton, Dubilier & Rice launched a £5.5 billion takeover bid for Morrison immediately triggering hopes of a counterbid from Amazon.

The US buyout group CD&R lodged a bid at 230p a share – a 29% premium to the share price on Friday night and today the shares rose nearly a third to 234p.

Analysts had been speculating that the potential bidder would have to increase its offer significantly to win over the company’s board, which rejected the current bid as “significantly undervaluing” the company.

Alternatively, some investors said, Amazon could enter a bidding battle for the group.

The two companies know each other well, as Morrisons already supplies Amazon’s online grocery offer.

Amazon has been opening a handful of grocery shops in the UK recently and bought the Whole Foods group in 2017.

However, today’s share price move suggests investors are less convinced a bidding war will ensue. When a hot bidding battle is expected, the share price of the target company usually surges far higher than the most recent bid price.

Shares in Sainsbury were also up 3% amid vague talk that a deal for Morrisons could trigger a potential bid for them as well. Tesco shares were up 1% for similar reasons.

CD&R’s bid is being fronted by Sir Terry Leahy, the former Tesco chief executive, and the group is not keen to go hostile, a factor adding to investors’ reluctance to bid the Morrisons share price too high.

It is thought that Apollo, the buyout fund that entered the bidding war for Asda last year, was “kicking the tyres” of Morrisons today with a view to perhaps entering the fray. Having spent months studying the market for its Asda transaction, it has a head start on many other potential counterbidders.

Lone Star, another one of the failed Asda bidders, is not thought to be interested.

CD&R, which is being advised by Goldman Sachs, has until 17 July to make another offer for Morrisons, which is being advised by Rothschild.

Sources said the bid team at the US firm would now be watching closely how the market responded.

Analysts at Barclays said it was unlikely that this first bid was the highest CD&R could justify paying, but cautioned that Morrisons’ board may struggle to persuade the market that the plc will be able to keep the share price up at 230p or better.

The company’s share price has fallen 3% over the past year and the board is still reeling from a recent boardroom pay row.

Barclays also warned that hopes of an Amazon takeover may be overly optimistic given that Morrisons remains more of a northern store chain, has a less affluent customer base than Amazon’s core and has a limited number of convenience stores.

Property industry sources were speculating that the US private equity group would be looking to sell down some of Morrisons’ weighty property portfolio.

In what is a legacy of its influential late chairman Sir Ken Morrison, the group has retained most of its stores rather than sell them and lease them back.

It owns around 85% of its own properties – significantly more than Sainsbury, which is in the mid-60% range, and Tesco.

Analysts have suggested CD&R would sell at least some of them to recoup cash rapidly. If Apollo were to come in with a bid of its own, it could do the same or simply keep the properties as an investment holding.

Barclays today said Morrisons’ properties were probably worth more than £8 billion, based on the most recent valuation in 2015.

CD&R considers itself at the “aristocratic” end of the private equity industry and will have been appalled by fears in the UK media that it may torch Morrisons’ jobs and asset strip the company. One newspaper headline today slammed “private equity vultures”.