Morrisons silent on family buyout reports

14-Feb-2014 - Last updated on 24-Jul-2024 at 13:46 GMT

Morrisons refused to comment on reports that its founding family was gauging City interest for a potential buyout bid

Morrisons is refusing to comment on reports that the founding family is considering taking the firm private.

The Morrisons family, which holds a significant minority shareholding of about 10%, had approached private equity groups Carlyle Group and CVC to gauge interest in funding a buyout, according to the newswire Bloomberg. But the prospect of a deal had been scuppered by Morrisons' weak trading performance. Shares in the troubled retailer climbed by about 5% after the reports, but then fell back in later trading.

City analyst Shore said the potential bid interest was no surprise given “the struggling retailer’s” trading weakness with asset support.

“Given Morrisons' trading weakness and relatively low valuation, such headlines and potential initiatives are to be expected …,” said Shore Capital analysts Clive Black and Darren Shirley. “We would expect a number of serious private equity investors to be running the rule over Morrisons.”

‘Tear up the 25-year contract online’

Black and Shirley said the bid speculation could cause particular concern for Morrisons' online delivery partner Ocado. “While it would not be the cheapest thing to do, any new owners may deem the best thing to do, if there was change, would be to re-negotiate or even tear up the 25-year contract online,” they said.

The analysts did not believe the 25-year partnership was a feasible plan and dealing with it sooner rather than later “may be the best course of action to a recovery story”.

Speaking this week (February 10), before the bid speculation, Black and Shirley warned Morrisons’ trading momentum was “a major cause for concern”. Commenting on Kantar market share data, the analysts said Morrisons’ weak Christmas trading – with like-for-like sales down 5.6% – may have deteriorated further.

But the retailer’s lack of a strong convenience offer and late-launched online service alone do not account for its underperformance. “The current trading strategy isn’t working but turnaround isn’t quick, free or easy,” they said.

'Ostracising core customers'

The analysts attributed the poor performance to the retailer ostracising core customers with the implementation of Fresh Formats, just as hard discounters and high street value retailers started to gain share.

Also, more affluent customers, who may have been attracted by higher category lines, did not arrive despite the new offer. “Morrison did lack access to the growth convenience and online markets but to over-emphasise this point is to misjudge the more fundamental processes to our minds,” they said.

Fundamental change was necessary to revive the retailer’s flagging fortunes, they added. While a recovery strategy should not focus solely on base prices, that area probably needed some attention.

Shore Capital retained its ‘hold’ advice on Morrisons’ stock.

Morrisons is due to report its 2013/14 preliminary results on March 13.

Meanwhile, in 2012 Ken Morrison accused the retailer's management of “neglecting the core business”, and risking losing touch with core customers.