Big corporate news over the weekend revolves around directors of WM Morrison recommending the 254p per share bid from Fortress. Not only is this around a 10% uplift from the previous offer made by CD&R – another US private equity firm – but it also comes with a raft of promises to protect multiple caveats of the business. WM Morrison owns rather than rents much of its estate, and is also recognised for its commitment to supporting British food producers, especially farmers. The Fortress bid comes with assorted pledges to maintain the status quo here, but are these worth the paper they’re written on? After all, even informal market watchers will still be aware of the high-profile incident when Cadbury was bought by Kraft back in 2010. It promised to keep UK manufacturing sites open – that didn’t last.
So, the prospect now is that further offers will be flushed out, as it seems clear there’s a bargain to be had, here. Another private equity group – Apollo – is rumoured to be looking around in a move which has sent the Morrison’s share price well above levels the bid from Fortress reflects. Investors could soon be asked to show their true colours. Accept a lower priced – but still generous 18 times earnings – offer from a consortium who are pledging to look after staff and suppliers, or accept a higher price from someone with what could be considered a more traditional approach when it comes to return on investment?
Unless those pledges made by Fortress are somehow made irrevocably binding and won’t simply see parts or all of the business being sold on in due course, are investors really wise to buy into promises of good corporate citizenship from what will become a private company with no true external influence on its direction? As much as it pains me to say it, perhaps the wise money takes the highest price on the table then uses the proceeds to find a new investment with values that align with their own.