Post takeover, will Morrisons share price continue to climb?

October 13, 2021 0 Comments

The Morrisons (LSE:MRW) share price has maintained its price level since the news of a takeover went public. The saga of Morrisons takeover has finally come to an end with Clayton, Dubilier & Rice (CD&R), a US private equity group, earning the winning bet. After months of fierce competition amongst two US-based investment groups, CD&R won the auction with a £7bn ($9.5bn) bid.

The ripple effect of the Morrisons takeover

On 2 October 2021, the fate of Morrisons was sealed. A few days before the auction, the takeover regulators confirmed that a one-day auction would be scheduled to take a final decision. The two bidders, Fortress Investment Group and CD&R, participated in five rounds, after which a final decision was made. Also, a vote from Morrisons management was requested, which was in favour of Clayton, Dubilier & Rice.

The Morrisons takeover gave a huge boost to the British supermarket sector. This happened because of rising speculations that other supermarket chains might be the recipients of the successive private equity bids. As a result, Sainsbury’s price increased by approximately 4%, making it the best performing stock on the FTSE 100 index, on 4 October. Also, Tesco jumped by 1.5% the same day while Ocado was the third in line amongst the top three risers with a gain of roughly 1%.

What is expected of Morrisons share price?

The Morrisons share price has jumped substantially since the initial rumours of takeover in July 2021. It’s currently trading at 285p, with a negligible difference in price since the takeover.

Morrison is the fourth-largest supermarket chain in the UK, with almost 500 shops across the country. While CD&R states that they have no plans to close any freehold stores, rumours are circulating that they may be split up under different brand names. That creates an aura of uncertainty. And so, it’s difficult for me to predict the upcoming pattern of Morrisons share price. Until a final decision is made by the new owners of Morrisons, I’ll just have to wait and see.

Final thoughts

Since the pandemic began, the British Pound has been struggling to cross the pre-Brexit threshold. This has made the market an attractive playground for international private equity firms. Even more so for supermarkets, which historically have traded at relatively low valuations.

Asda was the first to be targeted in February and now Morrisons in October. And, with rumours about Sainsbury’s being next, my interest is spiking in this sector.

Morrisons’ latest interim report showed strong growth with revenue coming in at £9.05bn, reflecting an increase of 3.7%. Management expects this performance to continue resulting in higher free cash flow that can be used to reduce the group’s debt position. That certainly sounds promising to me and could push the Morrisons share price even higher over the long term. But I’m keeping this business on my watchlist, for now, to see how the new management team performs over the next couple of months.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned at the time of writing. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

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