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ALEX BRUMMER: Morrisons is the wrong deal at the wrong time


ALEX BRUMMER: Morrisons is a farmer, landowner, fishing company and food producer all of whom could be harmed by private equity ownership

  • Under corporate law, the CMA is not empowered to intervene directly as there is no longer a formal “public interest” review in the case of acquisitions
  • A spineless board at Morrisons that had its non-executive directors behaving like nodding dogs convinced Fortress to be on the home stretch
  • According to the current schedule, Morrisons’ application process will come to a head in mid-August, when MPs, ministers and advisors will be deep in their summer break

Fortress, backed by the Softbank and Koch dynasty, has informed the exchange that it does not expect any competition on its £ 6.3 billion (£ 9.3 billion including debt) bid for the emblematic grocer of Bradford-based Morrisons.

There is no immediate problem of market concentration like there was with Sainsbury’s and Asda merger in 2019.

Fortress’s other major retail investment in the UK is Majestic, and the overlap in the wine departments is unlikely to affect consumers. Much more revealing are the comments made by the Managing Director of the Competition and Market Authority (CMA), Andrea Cocelli, on private equity. He warns that debt-driven private equity deals can make target companies “more susceptible to failure” and exacerbate the effects of business shocks.

Van Morrison: According to the current schedule, the Morrisons application process will come to a head in mid-August when MPs, ministers and advisors will be taking their summer breaks

Fortress may seem like a safe owner, but we shouldn’t forget that often acting like a giant hedge fund, Softbank posted losses of £ 8.6 billion in 2020 from huge bets on the Nasdaq market.

A slight change in monetary terms and interest rates could have a dramatic impact on the £ 5 billion bridging loan that Fortress is looking to provide for the Morrisons purchase. Under company law, the CMA is not empowered to intervene directly, as there is no longer a formal “public interest” review in the case of takeovers.

Still, the behavior of the price-driving owners of pharmaceutical company Advanz, along with the disastrous management of private equity owned nursing homes and welfare, should be of great concern to ministers.

Morrisons isn’t just a grocer. It’s a farmer, landowner, fishing company, and food producer, all of which could be harmed by private equity ownership in terms of food security and higher prices for consumers.

A spineless board at Morrisons on which the non-executive directors acted like nodding dogs convinced Fortress that it is on the home stretch and can use the fashionable means of a court-sanctioned deal to expedite the merger in front of public interest contradict.

According to the current schedule, the Morrisons application process will come to a head in mid-August when MPs, ministers and advisors will be spending their summer breaks. However, the takeover is not a done deal.

In the starting blocks there is the possibility of a higher knock-out offer from rival Clayton Dubilier & Rice or a real shareholder revolt. Opposing investors can be divided into two groups. Those like Silchester (the biggest owner) are more concerned about price than principle. The second group are long owners like M&G and Legal & General who don’t want a good northern company to be cheap and down.

The power of investors to overturn unwanted corporate actions should not be underestimated. British investors played a key role in ensuring that Unilever did not hide in Rotterdam.

They also came close to thwarting Melrose’s hostile offer for GKN.

Rebelling against decisions made by a regulatory body can be uncomfortable.

But just as investors punished CEO David Potts for paying greedily, they now have a second chance. They have to pull a line in the sand about heavily indebted deals, inflated consulting fees and another unscrupulous payout of 19.6 million pounds to Potts.

Coming roses

The recovery has been a long time coming, but with the latest quarterly results, Natwest finally seems to have beaten the dire legacy of Fred Goodwin.

It took three CEOs, monumental asset disposals, and some awkward policies regarding board pay and the bank’s future future in the private sector to get to that point. Boss Alison Rose is comfortable now, having sat on a pile of excess capital to start rewarding shareholders (of which the government is still the largest at 55 percent) and investing in the future.

Rose is confident enough to free up £ 600m worth of cash for bad times. She is confident the bank has a firm grip on lending in the commercial and residential markets, where low interest rates and easy money have created a mini price bubble.

Now that dividends are paid and share buybacks take place on the train, the sale of the state stake can take place. The bigger challenge is keeping up with fintech. Rose has ideas like ripping up the antiquated Swift remittance system and offering consumers the same exchange rates as commercial customers. Keep it up!

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