ALEX BRUMMER: Morrisons is a farmer, landowner, fishing company and a food producer, all of which could be damaged by private-equity ownership
Softbank and Koch dynasty-backed Fortress has informed the stock market that it expects no competition bar to its £6.3billion (£9.3billion including debt) bid for emblematic, Bradford-based grocer Morrisons.
There is no immediate market concentration issue as there was when Sainsbury’s sought to merge with Asda in 2019.
Fortress’s other major retail investment in Britain is Majestic, and the overlap in wine departments looks unlikely to impact consumers. What is far more revealing are the comments made by Competition and Markets Authority (CMA) chief executive Andrea Coscelli about private equity. He cautions that debt-fuelled private equity deals can make target companies ‘more vulnerable to failure’ and amplify the impact of business shocks.
Van Morrison: Under the current timetable Morrisons’s bid process comes to a head in mid-August when MPs, ministers and advisers will be deep into their summer breaks
Fortress might seem like a safe owner but we shouldn’t forget that Softbank often behaves like a giant hedge fund and in 2020 ran up losses of £8.6billion by making huge bets on the Nasdaq market.
A small change in monetary conditions and interest rates could have a dramatic effect on the £5billion of interim financing which Fortress is proposing to put in place to buy Morrisons. Under the Enterprise Act, the CMA doesn’t have the powers to directly intervene because there is no longer a formal ‘public interest’ test when it comes to takeovers.
Nevertheless, the behaviour of the price-gouging owners of the pharma company Advanz, together with disastrous stewardship of private equity-owned care homes and social care, ought to give ministers grave cause for concern.
Morrisons is not just a grocer. It is a farmer, landowner, a fishing company and a food producer, all of which could be damaged by private-equity ownership in terms of food security and higher prices for consumers.
A spineless board at Morrisons, where the non-executive directors have behaved like nodding dogs, has convinced Fortress it is on the home straight and it can use the fashionable device of a court-sanctioned deal to speed through the merger in the face of public interest opposition.
Under the current timetable Morrisons’s bid process comes to a head in mid-August when MPs, ministers and advisers will be deep into their summer breaks. However, the takeover is not a done deal.
Waiting in the wings is the possibility of a higher knock-out bid from rival Clayton Dubilier & Rice, or a genuine shareholder revolt. Objecting investors fall into two groups. Those like Silchester (the biggest holder) are more concerned about price than principle. The second group are long holders such as M&G and Legal & General, who don’t want to see a good northern company taken out on the cheap and defenestrated.
The power of investors to overturn corporate actions they don’t like should not be underestimated. UK investors were instrumental in making sure that Unilever didn’t hide itself away in Rotterdam.
They also came close to defeating Melrose’s hostile bid for GKN.
Rebelling against decisions made by a compliant board can be awkward.
But in the same way as investors punished chief executive David Potts over his greedy pay, they now have a second chance. They must draw a line in the sand over highly leveraged deals, excessive advisory fees and a further unconscionable £19.6m payout to Potts.
Coming up roses
Recovery has been a long time coming, but with its latest quarterly results Natwest finally looks to have vanquished the appalling legacy of Fred Goodwin.
It has taken three chief executives, monumental asset disposals and some awkward politics over boardroom pay and the bank’s prospective future in the private sector to reach this point. Boss Alison Rose now feels comfortable, having sat on a pile of excess capital, to start rewarding shareholders (of which the Government is still the biggest with 55 per cent) and investing in the future.
Rose feels confident enough to release £600m worth of cash set aside for bad times. She is confident that the bank has a strong grip on lending in the commercial property and residential markets where low interest rates and easy money have created a mini-prices bubble.
Now that dividends are being paid and share buybacks in train, selling down the government stake is able to happen. The bigger challenge is keeping up with fintech. Rose has ideas such as tearing the antiquated Swift transfer system and offering consumers the same market forex rates as commercial customers. Way to go!