After Clayton, Dubilier & Rice, a New York-based private equity firm, beat a previous offer by the company with a $7 billion ($9.5 billion) deal, shares in Morrisons soared Friday.
The board of Morrisons has accepted the offer, and stated that shareholders should vote for the takeover at the meeting scheduled for early October.
This means that the company is withdrawing its recommendation to investors not to accept a previous takeover deal worth 6.7 billion pounds from Fortress, a rival private equity firm. Fortress stated it was still considering its options.
Morrisons shares rose on the news of the new offer, as well as the possibility of a continuation of the bidding war. It was at 291.20 pence in London morning trading.
Morrisons, Britain's fourth largest retailer, employs approximately 110,000 people in over 500 stores and more than 300 gas stations.
This new offer comes one week after CD&R had been given an extended deadline by British regulators until Friday afternoon to submit a bid or walk off. The Morrisons board had initially rejected CD&R, stating that a bid of 5.5 billion pounds would "significantly undervalue Morrisons and its future prospects".
The updated offer document was released late Thursday. It acknowledged Morrisons' "strong heritage" and stated that it will continue to build on its long-standing strengths. It stated that there were no plans to make major changes in the management and operation of Morrisons' property portfolio.
CD&R is one the most established investors in this sector. Terry Leahy, former boss of Tesco (Britain''s largest supermarket chain), has advised CD&R over the past 10 year.
Private equity firms often acquire companies that are undervalued and look for ways to reduce costs and increase profits before selling them at profit. Because of Britain's exit from the European Union, and the coronavirus pandemic, British assets are often considered to be less expensive than they would otherwise have been.
Morrisons is a good opportunity for private equity, as its value was lower than its pre-pandemic level despite its strong revenues.
Morrisons was established in 1899 by a Bradford market egg and butter stand. It grew steadily and was eventually listed on the stock exchange in 1967. It grew further when it acquired rival Safeway in 2004, a move that helped to expand its presence in southern England.
A number of institutional shareholders now own the firm, including Silchester International and Columbia, Blackrock, Schroders, and Schroders.