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Vultures circle Morrisons

by LLB Editor
5th Jul 21 1:18 pm

We’ve now got confirmation of three parties interested in Morrisons and fear of missing out could attract further interest from private equity or trade buyers.

So why are they all moving now, when Morrisons’ share price pre-bid had been plodding along in roughly the same 170p to 185p range since September 2020?

“There was plenty of time for suitors to make their move when it was clear that Covid vaccines were successful and would help to reopen society. Morrisons’ strategy of being a strategic supplier to Amazon and McColl’s was also well in motion, and it had proved to be a resilient supermarket operator during the pandemic. We knew all this in 2020 and it’s taken until mid-2021 to see bid action,” says Russ Mould, investment director at AJ Bell.

“Perhaps interested parties only made their move once they could see that UK assets were becoming more attractive to overseas investors. Private equity firms have been sitting on oodles of cash for a long time, known as dry powder in the industry, and they now look intent on going on a spending spree.

“Food retail is not an easy sector in which to make money and competition is only getting tougher. It will be interesting to see if Morrisons’ new owner, assuming a bid is successful, slashes the supermarket’s prices to gain market share. However, if it was that easy, widespread price cuts would have already been pushed through.

“At the end of the day, there is a balance between trying to attract customers and making sure the business still makes a profit. Morrisons doesn’t want its stores resembling a jumble sale with pallets acting as shelves and minimal staff.

“It wants customers to have a good shopping experience and feel as if they are buying decent quality produce – and to do that, it cannot afford to be in the race to the bottom.”

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