CD&R is reportedly considering the sale of more than two dozen physical assets from its nine distribution centers and 20 manufacturing sites worth more than £600m in value, according to The Sunday Times. Morrisons declined to comment on the potential sale.
Rollits corporate finance director Julian Wild said the sale made a lot of sense, given that the first priority for the new owner is to pay down the debt by offloading whatever can be easily disposed of.
Selling off the manufacturing operations was an easy choice, given that most retailers weren’t in a position that required them to have them in the first place, Wild explained.
Little added value
“It’s not what retailers do best, other manufacturers can meet that supply requirement and consumers don’t attach any value to Morrisons having its own production facilities.
“So, in short, it is entirely predictable and probably makes sense. Nevertheless, that doesn’t change my view that private equity is not the best owner of a leading UK retailer and CD&R will not be the long-term owner. Is that good for employees and customers? I think not.”
Shore Capital head of food Clive Black echoed Wilds sentiments. He noted that the substantial investment by CD&R to acquire Morrisons meant it was generally expected that the new owners would look to reduce indebtedness.
“So, the suggestion that it is exploring the sale of the freeholds behind the Morrison distribution and manufacturing activities is no surprise,” he continued.
Bigger questions
“Bigger questions may emerge, given commitments at the time of the purchase around whether or not to sell the manufacturing businesses, as opposed to the properties, and any stores in time.”
Reports of CD&R looking to offload Morrisons’ manufacturing base followed approval of its acquisition of the retailer by the Competition and Markets Authority last week (9 June).
Meanwhile, last week, French ingredients firm Solina expanded its reach into the UK with the acquisition of a majority stake in sauces and condiments manufacturer Zafron Foods from the Kenny family.