UPDATE 2-Morrisons founding family gauge private equity interest -report

Wed Feb 12, 2014 7:36am EST

(Adds no comment from Apax, analyst, investor comment, updates shares)

LONDON Feb 12 (Reuters) - The founding family of Britain's No. 4 grocer, Wm Morrison Supermarkets, has contacted buyout firms to gauge their interest in taking the business private in what could be the biggest UK retail purchase in seven years, Bloomberg reported.

The Morrison family, which holds about 9.5 percent of the supermarket, had approached private equity firms CVC Capital Partners, Carlyle Group and Apax Partners, although the latter had decided not to pursue a deal, the report said, citing people with knowledge of the matter.

Shares in the over 400-stores Morrisons, down 18 percent over the last six months on concerns over the grocer's weak trading, rose as much as 5.4 percent on Wednesday.

They were up 0.8 percent at 239 pence at 1206 GMT as analysts and shareholders said they were sceptical that a deal would happen.

The report said the Morrison family has so far been unable to find a buyout partner due to the size of any potential deal and the grocer's poor performance after a sharp fall in like-for-like sales over Christmas.

Bloomberg said a buyout of Morrisons would exceed 7 billion pounds ($11.5 billion) and require a group of funds to work together. At that price, a deal would be the biggest purchase of a British retailer since the 2007 buyout of Alliance Boots.

Morrisons, CVC, Carlyle and Apax declined to comment, while the Morrison family could not be immediately reached for comment.

Former chairman and chief executive Ken Morrison, whose father founded the company in 1899, holds the honorary post of life president of Morrisons but has not had any involvement in the running of the company since his retirement in 2008.

Morrisons' shareholders and retail analysts were doubtful that a deal would happen.

"Typically buyout firms approach shareholders rather than the other way around, so this aspect of the news reduces the likelihood of a deal in our eyes," said analysts at Barclays.

"Potential buyers will likely be nervous of whether the business is fundamentally broken," they said.

One UK based institutional shareholder of Morrisons said it was unsure how the firm would work any better in private hands.

"The property asset backing could be an angle, but how that could be realised, and how robust that asset value is in the face of lacklustre trading, is uncertain," it said.

Bradford, northern England based Morrisons' late entry into both online grocery and local convenience stores, the sector's two fastest growing channels, as well as intense competition from discounters Aldi and Lidl, has dented its market share and profits.

Last month the firm revealed it had endured a poor Christmas despite it having talked up its prospects in November. Its like-for-like sales fell 5.6 percent, excluding fuel, in the six weeks to Jan. 5 and it said year profit would be towards the bottom of the range of analysts' expectations.

Morrisons is also facing calls from activist investors, including U.S. hedge fund Elliott Associates, to radically restructure its property portfolio.

The grocer plans to detail the result of a property review when it publishes 2013-14 results on March 13 but has said the majority of its core estate will remain freehold.

Analysts said if Morrisons did go private it would likely slash capital expenditure and consider store disposals. ($1 = 0.6067 British pounds) (Reporting by James Davey; additional reporting by Clare Hutchison, Chris Vellacott, Freya Berry and Neil Maidment; editing by Kate Holton and Louise Heavens)