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On 29 September 2021, the Takeover Panel a statement announcing the auction of Morrisons on Saturday 2 October 2021 to resolve the competitive situation between private equity firms Clayton, Dubilier & Rice (CD&R) and Fortress Investment Group (Fortress), which is leading a consortium comprised of US, Canadian and Singaporean bidders. The fight for Morrisons has been a highlight of takeover activity in Q3 2021 and it appears that the momentum is set to continue into Q4 2021.

CD&R initially Morrisons in June 2021 with a £5.5bn bid, though its bid by 26% to £7bn following Fortress’ two bids of  and  (see: and ). Ahead of the auction, Morrisons’ shares continue to trade at a premium to CD&R’s current reigning of £2.85 per share, closing at £2.96 on 29 September 2021, valuing the company at £7.2bn. 

The auction will consist of a maximum of five rounds, though if no bid emerges in the first round, CD&R’s offer will prevail. Further, if either party announces that they have no intention to increase their offer (as in The Carlyle Group’s battle for Vectura Group plc) before 5pm on 1 October 2021, the auction will not commence. If there is a bid in the first round, in the subsequent three rounds, an offeror will only be allowed to bid if the other offeror made an increased bid in the immediately preceding round. The fifth round will allow both offerors to make an increased bid, with Fortress permitted to make bids at an even number of pence and CD&R at an odd number of pence. For more information on auction procedures, see Practice Note and Resource Note (a subscription to Lexis®PSL Corporate is required). Following announcement of the results of the auction by the Panel, each offeror must make a Rule 2.7 announcement by no later than 4 October 2021 and Morrisons will be required to announce their recommendation by 5 October 2021.  

Both bidders have attempted to differentiate themselves from the typical negative connotations associated with private equity and given similar assurances on material changes to suppliers, pension schemes benefits and engaging in sale and leaseback transactions. CD&R had even engaged positively with Morrisons’ pension scheme trustees and reached an  to provide additional property security to address concerns that any takeover would materially weaken the position of the schemes. However, on 25 September 2021, CD&R  its scheme document, giving a peek into its corporate structure which unveiled a Cayman Islands incorporated tax vehicle that would run the company. The Cayman Islands imposes no taxes on corporates and with the tight margins of the supermarket sector it is unsurprising that CD&R has sought to maximise its future sell-out profit and reduce its tax liability. Cayman Islands’ status as a tax haven has led to MPs for the UK government to intervene on the deal.

Marker Tracker will continue to monitor these transactions as they develop. See our upcoming Public M&A Q3 2021 update for further analysis on the trends seen in this quarter.