American investors try to buy a British supermarket. here’s why – .

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American investors try to buy a British supermarket. here’s why – .



Morrisons confirmed over the weekend that New York-based Clayton, Dubilier & Rice last week made an unsolicited offer of £ 2.30 ($ 3.19) per share in cash for the ‘grocer. This is a 29% premium for Morrison (MRWSF) closing price on Friday, giving it a market value of around £ 5.5bn ($ 7.6bn).

Shares of the company jumped more than 30% in London on Monday, lifting the share price above the takeover bid and lifting other shares in the sector. Sainsbury’s (JSNSF) and Ocado (OCDDY) climbed to over 4%, with Mark & ​​Spencer (MAKSY) up almost 3% and Tesco (TSCDF) up more than 1%.

Morrisons rejected the proposal in his statement on Saturday, saying it “significantly undervalues” the company and its future prospects. Clayton, Dubilier & Rice now has until July 17 to make a firm offer.

The move comes amid increased activity by UK retail investors and a series of takeover bids from UK companies, undervalued for years due to low yields associated with lackluster growth and a weak pound following the 2016 Brexit referendum.

In October, Walmart (WMT) sold the Asda supermarket chain to European private equity group TDR Capital and the founders of a global convenience store company. Meanwhile, Czech billionaire Daniel Kretinsky recently increased his stake in Sainsbury’s to 10%, adding to speculation that he could be the next takeover target.

Analysts speculate that Tesco, Britain’s largest supermarket chain, could also attract a buyer.

“The volume of liquidity, reflecting monetary policy, and the absorption of capital by family offices, high net worth investors and private capital, means that even Tesco, with its market capitalization of £ 18 billion ($ 25 billion ), is not too big to bid, ”said Clive Black, head of research at Shore Capital on Monday.

Sainsbury’s and Tesco, which benefited from increased demand during the closures, are now on the verge of benefiting from a strong economic recovery in Britain following the pandemic. Analysts say shoppers will likely continue to eat more meals at home even with restaurants reopening, especially as many offices remain closed.

Tesco CEO Ken Murphy told analysts on a phone call on Friday that online demand had been “incredibly resilient even with the easing of restrictions.”

“We expect sales to remain well above the pre-Covid-19 level for the rest of the year,” he added.

The two major retailers have also been successful in controlling costs, generating significant sums of money and narrowing price differentials with German discounters Aldi and Lidl, according to Shore Capital’s Black.

This could make them prime targets for Amazone (AMZN), he added. “Asda’s offer and Kretinsky’s investment mean that the topic of Amazon’s plans will also be one of the ongoing discussions around Sainsbury and Tesco,” Black said.

The online retailer, which has been expanding its grocery offering since purchasing Whole Foods in 2017, already has a close relationship with Morrisons, which supplies its UK Prime and Pantry customers with dry, fresh and frozen products.

But the market does not bet on a competing offer of Amazon. “There is no indication in the [Morrisons] Share price today that Amazon will step in and outbid Clayton, Dubilier & Rice, ”said Russ Mold, chief investment officer at stockbroker AJ Bell.

With a languid stock price and over £ 7 billion ($ 9.7 billion) in assets, including a real estate portfolio worth more than the company’s market value, Morrisons “ticks a lot of private equity boxes, ”he told CNN Business.

Back in favor?

Investor interest in UK assets extends beyond grocers. There were more than 50 offers for Companies listed in the UK in the past eight months, only six of which have since been discontinued, according to Mold.

The average premium offered was 34%, indicating that many of these companies may be undervalued by the market after years of poor shareholder returns. In the past 12 months, 95 offers have been announced for companies listed in the UK for a combined value of $ 107 billion, according to data from Dealogic.

“The UK has consistently underperformed on the global stage since the Brexit vote in June 2016 and the pound has failed to regain the levels it was trading at before Britain decided to leave the EU, ”Mold said in a recent memo. “This rotten effort may mean that UK stocks are unloved and therefore potentially undervalued,” he added.

UK and European stock indices are expected to benefit from the post-pandemic recovery, given the strong representation of companies such as automakers and banks that perform well when the economy is on the upswing.

They may also offer better value to investors after the much more robust gains of US indices over the past decade, when European markets were held back by a shortage of tech companies and lackluster economic growth in the region.

the FTSE 100 (UKX) has only grown by 26% in the last decade, while Europe STOXX 600 (SXXL) is up 85%. This compares to a gain of over 230% for the S&P 500 (SPX).

– Julia Horowitz contributed reporting.

Correction: An earlier version of this article incorrectly reported the number of offers for UK listed companies registered in the past year.

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