Apollo Global joins battle for Britain's Morrisons

  • Apollo is third Morrisons suitor to go public
  • Morrisons agreed deal with Fortress on Saturday
  • Fortress offer topped CD&R proposal
  • Morrisons shares up 11.4%

LONDON, July 5 (Reuters) - The $8.7 billion bid battle for Britain's fourth largest supermarket group Morrisons (MRW.L) ratcheted up on Monday when a third private equity group, Apollo Global Management, entered the fray.

U.S. group Apollo, which last year missed out on buying Asda, the No. 3 grocery player in the United Kingdom, said it was in the preliminary stages of evaluating a possible offer for Morrisons but had not approached its board.

On Saturday Morrisons said the board, led by Chairman Andrew Higginson, had recommended a takeover led by SoftBank (9984.T) owned Fortress Investment Group that valued the firm at 6.3 billion pounds ($8.7 billion). read more

The offer from Fortress, along with Canada Pension Plan Investment Board and Koch Real Estate Investments, exceeded a 5.52 billion pound unsolicited proposal from Clayton, Dubilier & Rice (CD&R), which Morrisons rejected on June 19. read more

However, it was less than the 6.5 billion pounds asked for by top 10 Morrisons investor JO Hambro last week. read more

Ultimately, the fate of Morrisons will be decided by its shareholders. As things currently stand they will vote on the Fortress deal.

Morrisons' three biggest investors Silchester, Blackrock and Columbia Threadneedle, which Refinitiv data showed having stakes of 15.2%, 9.6% and 9.4% respectively, are effectively the kingmakers. None has commented so far.

Analysts have speculated that other private equity groups and Amazon (AMZN.O), which has a partnership deal with Morrisons, could create a potential bidding war.

Shares in Morrisons were up 11.4% at 267.3 pence at 0735 GMT - ahead of the 254 pence value of the Fortress deal, indicating investors expect higher offers to be tabled.

Under British takeover rules CD&R has until July 17 to come back with a firm offer.

The Takeover Panel is yet to announce the deadline by which Apollo must clarify its intentions in relation to Morrisons.

UNDERVALUED

The interest in Morrisons underlines the growing appetite from private funds for British supermarket chains, which are seen as attractive because of their cash generation and freehold assets. The funds believe the stock market is not recognising the grocers' value in the wake of the COVID-19 pandemic.

Morrisons started out as an egg and butter merchant in 1899. It now only trails UK market leader Tesco (TSCO.L), Sainsbury's (SBRY.L) and Asda in annual sales.

Morrisons owns 85% of its nearly 500 stores and has 19 mostly freehold manufacturing sites. It is unique among British supermarkets in making over half of the fresh food it sells.

Last year Apollo lost out on buying Asda to brothers Zuber and Mohsin Issa and TDR Capital. That deal valued Asda at 6.8 billion pounds.

Shares in Tesco and Sainsbury's were up 1% and 1.4% respectively with speculation swirling that they could also attract bids. Both companies declined to comment.

Apollo says its private equity business had more than $89 billion in assets under management by the end of March 2021, in 150 companies such as Watches of Switzerland, TMT group Endemol Shine, bookmaker Ladbrokes Coral and Norwegian Cruise Line.

($1 = 0.7232 pounds)

Reporting by James Davey; Editing by Kate Holton/Guy Faulconbridge/Kirsten Donovan

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