CD&R called to reassure MPs over Morrisons takeover

Pensions Expert reported in September that an agreement was struck between the private equity manager and the trustees of Morrisons’ defined benefit schemes, after the trustees warned of potentially dire consequences should their schemes not be granted additional protections as a result of any takeover.

The trustees had cited “the introduction of additional debt secured with a priority claim ahead of the schemes on the majority of the Morrisons group assets, the related increased debt service burden, and potential future corporate activity, including the potential for refinancing and restructuring”, as reasons to be concerned.

Following discussions, CD&R agreed to provide “further properties with an appropriate release mechanism to allow for a gradual release of that additional security as the schemes progress towards ‘buyout’, together with enhanced governance provisions in respect of the schemes”, according to a statement from the trustees at the time.

The deal would see CD&R support the schemes on their journey to buyout within the existing timeframe, estimated to be 10 years.

“Having received professional advice, and having regard to the potential impact of the CD&R offer and their respective fiduciary obligations to the beneficiaries of each of the schemes, the trustees consider that the package of mitigation measures, once contractual details are finalised, will provide sufficient and appropriate support for the schemes,” the trustees said.

CD&R was locked in competition with rival private equity firm Fortress Investment Group in its bid to buy up the supermarket chain, and emerged as the recommended bidder following an auction held on Saturday, bidding 287p per ordinary share while Fortress offered 286p. Morrisons’ shareholders will vote on the offer in a general meeting on October 19.

Andrew Higginson, chair of Morrisons, said: “Today’s final offer from CD&R represents excellent value for shareholders, while at the same time protecting the fundamental character of Morrisons for all stakeholders.

“CD&R have good retail experience, a strong record of developing and growing the businesses in which they invest, and they share our vision and ambition for Morrisons. We remain confident that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business.

“Shareholders will now have the final say and, if the offer is approved, the board is confident that Morrisons will continue to go from strength to strength under CD&R’s ownership.”

Sir Terry Leahy, senior adviser to CD&R funds, said: “We are gratified by the recommendation of the Morrisons board and look forward to the shareholder vote to approve the transaction. We continue to believe that Morrisons is an excellent business, with a strong management team, a clear strategy, and good prospects.”

CD&R’s assurances to the trustees of Morrisons’ DB schemes were not sufficient to assuage politicians’ concerns, however.

As reported by the Guardian, both Labour and the Liberal Democrats announced they would be “keeping an eye” on the company to ensure Morrisons was not saddled with debt and stripped of its assets.

“Morrisons is a much-loved British firm which has been rooted in communities up and down the country for over 100 years,” Seema Malhotra, Labour MP and shadow minister for business and consumers, said. 

“The new owners must urgently deliver binding assurances for workers, pension fund holders and local people.

“We cannot see a repetition of previous cases where businesses have been loaded with debt and asset-stripped. Morrisons is a great British company, which must be safeguarded for the future.”

Sarah Olney, Liberal Democrats MP and the party’s spokesperson for business, added: “It would be a great shame to see local teams lose their stake in the future direction of the business. With uncertain economic times ahead, the new owners must pass the key tests of not loading the business with debt, not cutting jobs, and, critically, protecting existing working conditions.”

CD&R said it did not intend to sell off Morrisons’ stores, and would retain the company’s existing headquarters in Bradford.