Interactive Investor

Morrisons shares surge again after receiving fresh takeover bid

5th July 2021 08:18

Richard Hunter from interactive investor

Morrisons has received another bid, but could there be more? Our head of markets looks at the future of the supermarket chain.

As an investment destination, the UK is attracting increased interest from overseas and the latest twist in the Morrisons (LSE:MRW) bidding war has upped the ante.

Having rejected an initial 230p per share bid from Clayton Dubilier & Rice, the board of Britain's fourth-largest supermarket chain has now accepted a 254p bid from Fortress, a global investment manager owned by Japan's SoftBank, apparently on the basis of business continuity as well as price. 

It is perfectly feasible, however, that this is not yet the end game. UK supermarkets in general are cash generating engines, whose share price gains have been capped by the costs of the pandemic, despite increased sales, making them more attractive on valuation metrics. In addition, Morrisons largely owns its freehold estate, adding another sweetener to any potential purchase.

Quite apart from the possibility of a revised offer from CD&R, Apollo Global Management have confirmed that they are also considering an approach, having recently missed out on a deal to buy Asda. This could lead to a three-way bidding war, with some speculation that following on from its business relationship with Morrisons, Amazon (NASDAQ:AMZN) could even emerge from left field as a surprise last minute entrant. 

The news could add froth to the FTSE250 index, which is currently ahead by 11% in the year to date, and even the FTSE100 by association. The premier index has added 10.5% this year and has been the focus of international investing interest over the last few months.

In the US, markets will get a pause for breath today on the Independence Day holiday, after a “Goldilocks” non-farm payrolls reading on Friday propelled each of the three major indices to new record closing highs.

The number of 850,000 jobs added last month was above forecasts and was notable by a pick-up in the leisure and hospitality sectors. However, with unemployment unexpectedly ticking up to 5.9%, many of the inflationary and interest rate rise concerns temporarily evaporated on the basis of an economy which appears to be recovering strongly, but without the need for the Federal Reserve to ease off the accelerator just yet. 

For the moment, the tailwinds which have driven the markets remain in place based on recovery optimism and, in the year to date the Dow Jones has now added 13.7%, the S&P500 15.9% and the Nasdaq 13.6%.

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