Why private equity sharks are shopping at Morrisons

The late Sir Ken Morrison — founder of the eponymous supermarket chain that’s the latest UK target for US private equity — had the blunt manner of the Yorkshire cattle farmer he became in reluctant retirement after he was ousted by his own board. Criticising his successors from the floor at one of his last AGM attendances, he roared: ‘I have 1,000 bullocks… but you’ve got a lot more bullshit than me.’ So I’m sorry he’s not around to accost the suits from the New York firm of Clayton, Dubilier & Rice (and their adviser, former Tesco chief Sir Terry Leahy) on the intentions behind the takeover bid that sent Morrisons’ shares soaring on Monday.

This is the hottest event so far in the surge of foreign money chasing cheap UK assets that I described last week. Morrisons has a good-value reputation and a growing online business, linked to Amazon, but this has never been reflected in a share price which has stumbled for the past three years. Most of its stores are owned freehold, making them ripe for the ‘sale and leaseback’ devices that private equity financiers habitually use to syphon cash; and some of its manufacturing units could be ripe for disposal. Its margins are challenged by discounters such as Lidl but the New Yorkers clearly smell profit and — having had their first offer valuing the business at £8.7 billion firmly rejected — may find themselves up against competing bidders, even possibly including the mighty Amazon.

If shareholders secure a rich price, workers keep their jobs and consumers don’t lose choice, there’s nothing fundamentally to be feared from foreign takeovers — even when, as some City fund managers are currently saying, too many seem to be happening at once. Sir Ken Morrison resented the intrusive demands of public company governance and PR, and would have hated private equity raiders even more: I picture him waving his farmer’s thumbstick from behind a padlocked five-bar gate.