Morrisons’ largest investor Silchester publicly rebukes £6.3bn Fortress offer | News

The largest shareholder in Morrisons has publicly attacked the £6.3bn takeover offer from a private equity-led consortium, throwing the deal into uncertainty.

Silchester International Investors, which holds a 15.1% holding in the supermarket chain, said in a statement that it was “not inclined” to support the existing offer from Fortress at the upcoming shareholder meeting on 16 August.

Fortress needs 75% of investors to give their approval for the 254p-a-share deal to go ahead, which looks increasingly unlikely following Silchester’s public intervention.

The move could force a higher bid from the consortium or encourage a rival bid to emerge.

The City is waiting to see if CD&R, which had a 230p-a-share offer rejected last month, will return with an improved offer. The US PE giant, which is working with former Tesco CEO Sir Terry Leahy, has until 9 August to put-up or shut-up under City takeover rules.

Silchester blasted the Fortress bid and the acceptance of it by the Morrisons board in its statement.

It said the structure of the Fortress deal meant there was “insufficient opportunity” for competing bids to emerge.

“Silchester encourages Morrison’s board to allow more time to respond to other parties who might offer better value to Morrison’s public shareholders,” the UK-based asset manager added.

“Furthermore, on the basis of publicly available information, there is little in the recommended offer that could not be achieved by Morrison as a listed company.”

Silchester pointed out that as a public company any benefits from an improved performance by Morrisons would accrue to public shareholders.

The firm argued that Morrisons had “a strong position” in its core supermarkets business, with a respected brand regionally, and that it had remained cash generative through the challenges of the pandemic and was able to support “an attractive” dividend.

It added the integrated supply chain at the supermarket was “unique” in the industry and was a source of “resilience” in the current political and economic environment.

And it pointed to the high proportion of freehold properties owned by Morrisons, which “is already demonstrating its ability to release incremental value”.

Morrisons shares have soared to 266p since the takeover bid emerged, which suggests the City expects an improvement on the current 254p-a-share offer.

Shares opened slightly higher this morning before falling back by 0.2% to 265.7p.

Morning update

Fierce competition at supermarkets have kept prices low once more in July, according to the new monthly data.

Shop price deflation accelerated to 1.2% year-on-year last month, compared with June’s decrease of 0.7%, the latest BRC-NielsenIQ index revealed.

Food deflation also quickened to 0.4% in July, up from 0.2% in June. This is the fourth consecutive month of falling food prices.

Fresh food prices fell for the eighth consecutive month, with deflation accelerating to 1% from 0.7% in June.

Ambient food inflation eased to 0.5% in July, down from 0.6% in June. This is the lowest rate of inflation for the category since January 2017.

Non-food deflation accelerated to 1.8% in July, compared to a fall of 1% in June.

British Retail Consortium CEO Helen Dickinson said UK consumers would be pleased to see another month of falling prices at the checkout.

“Annual prices in July fell at a faster rate than the previous month due to fierce competition between supermarkets keeping food prices low, and the steeper fall in non-food prices,” she added.

“With the reopening of some holiday destinations and other recreational activities, consumers broadened their spending to include more leisure and travel. In response, non-food retailers, particular fashion businesses, have been working hard to keep consumer appetite alive with summer sales.”

However, Dickinson warned that low prices wouldn’t last forever, with retailers facing “huge” cost pressures as a result of rising costs of shipping, haulage and petrol, as well as frictions from exiting the EU.

Mike Watkins, head of retailer and business insight at NielsenIQ, said: “It’s an uncertain time for many households as the economy slowly reopens and recent NielsenIQ research shows 41% of all shoppers are watching their spend more than they did before the pandemic. So, it’s important that retailers continue to keep prices low especially as the increase in CPI is likely to lead to different shopping behaviours to help pay for the other increases in household spend.”

Revenues at British American Tobacco have increased by 8.1% to £12.2bn in the first half thanks to growth in new categories for the tobacco giant.

The group boasted of its highest-ever non-combustible product consumer gains, adding 2.6 million more consumers to 16.1m compared with a year ago, with the category now accounting for 11.8% of total sales.

New category revenues, which include sales of vapours, tobacco heating products and modern and traditional oral products, soared 50% to £942m in the six months to 30 June. BAT now expected full-year new category losses to reduce.

Sales in traditonal cigarettes, with brands such as Lucky Strike, Kent, Pall Mall and Camel, also rose 5.8% in the period.

Adjusted profits in the half increased 5.4% to £5.2bn, but was down 3.7% on a year ago to £4.9bn in a reported basis, taking into account currency translation headwinds and one-off costs.

CEO Jack Bowles sai it had been “an excitng period” of growth in new categories.

“We added 2.6m consumers, our highest ever increase, to our non-combustible product consumer base, to reach 16.1m. This demonstrates our accelerating transformation driven by our multi-category portfolio, with continued key market share gains in all three new categories.

“We are building strong, global brands of the future with Vuse, Velo and glo. These are underpinned by industry leading multi-category consumer insights and science, with increasing digitalisation. We have invested a further incremental £346m in the first half, funded by continued value growth from combustibles and expect to reach our £1bn Quantum savings target 12 months early. We have now increased our savings target to £1.5bn by 2022.

“Our rapid growth in new categories is driving significant scale benefits and 2021 is shaping up to be a pivotal year in our journey towards ’A Better Tomorrow’.

“Our focus on new categories growth and business sustainability puts ESG at the core of our strategy. There is great momentum across the business and we are well on track to meet our targets of £5bn of new category revenue by 2025 and 50m non-combustible product consumers by 2030.

“We are committed to reducing the health impact of our business. Our ambition remains a sustainable, high growth, multi-category, consumer products business. I am excited about the future for BAT.”

Shares in fresh produce supplier Total Produce have slumped 15.7% to 177.9p after it issued a short statement to the London Stock Exchange revising down the expected price range in the upcoming Dole IPO.

The group said the New York offering of Dole would now be between $16 and $17, down from between $20 and $23 previously.

Dole plc is the result of a merger between Ireland’s Total Produce and Dole Food Co, in which the former already owns a 45% stake. The companies announced an agreement to combine in February under a newly created US-listed company.

The FTSE 100 edged 0.1% higher to 7,001.54pts this morning.

Shares in BAT slipped by 0.04% to 2,769.5p after it released its interims today.

Early risers included SSP Group, up 3.7% to 262p, Devro, up 3% to 224p, Marston’s, up 2.8% to 85.9p, and Just Eat Takeaway, up 2.6% to 6,380p.

Fallers included Kerry Group, down 1.9% to €123.50, Naked Wines, down 1.4% to 863p, and Reckitt Benckiser, down another 1.3% to 5,623p.

Yesterday in the City

The FTSE 100 ended the day down 0.4% to 6,996.08pts as Reckitt Benckiser suffered a dreadful session.

The Dettol to Durex owner slumped 8.1% to 5,720p after it warned of a squeeze on its margins as costs begin to mount for global suppliers.

Newly listed wholesaler Kitwave also took a battering after it posted a slump in profitability and sales in its first half. The stock sank 6.2% to 162p, which is still ahead of its 150p listing price at the time of its £105m IPO in May.

It was a better day for Greencore as shares rose 3.3% to 133.2p following reports of green shoots of recovery in the beleaguered food-to-go market. The sandwich maker talked up “strong revenue momentum” in its third quarter, with growth of 53.1% against a year ago.

Other risers in food and drink yesterday included Just Eat Takeaway, up 3.8% to 6,217p, SSP Group, up 2.5% to 252.7p, and Kerry Group, up 2.4% to €125.90.