Morrisons shares soar amid looming bidding war

• Morrisons rebuffed a £5.5 billion takeover bid from a US private equity firm
• The Morrisons share price rose 36% to 240p per share on 21 June
• The firm has offered to pay 230p per share in cash for Morrisons
• The New York-based buyer has four weeks to improve its offer
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Why did the Morrisons share price skyrocket?

The share price of the UK supermarket giant Morrisons, which has a 10.4% market share, jumped by a staggering 36% on June 21 following a rejected takeover bid by the US private equity firm Clayton, Dubilier, and Rice.

The firm had offered £5.5 billion in their bid, which translates to an all-cash bid of 230p per share. Although the Morrisons share price had closed at 178p on Friday, 18 June, it shot up to 240p per share when London markets opened on Monday, 22 June, following the news that the retailer had rejected the takeover bid.

Morrisons explained that CDR had failed in its bid because it had ‘significantly undervalued Morrisons and its future prospects’, giving CDR four weeks to revise its offer. The Morrisons share price continued to rise when markets opened on 22 June, before dipping slightly to 237p per share.

Is a bidding war on the horizon?

It seems the main reason that the Morrisons share price rose so sharply is that there is a potential bidding war underway. The attempt comes only weeks after the £8.8 billion takeover of the UK supermarket Asda by the billionaire Issa brothers.

Private equity firms have been eyeing up UK supermarkets following a prosperous year due to the pandemic, which pushed profits to new heights and cemented the dominance of the country's biggest chains.

IG's Chris Beauchamp noted that the share prices of other major supermarkets ‘have jumped in the wake of the news, as the prospect of a bid shakes up the somewhat moribund UK supermarket sector’.

‘Clearly whoever takes Morrisons will have big plans to challenge Tesco's dominance, but with the sector still in flux as lockdowns end and a more normal world returns, will it make sense to place big bets on the sector?’

L&G, one of the top shareholders in Morrisons, said that the failed bid would not be ‘adding any genuine value’ and that a better offer should be expected. Meanwhile, George McDonald, executive editor of Retail Week, is now predicting that the failed CDR takeover will ‘flush out more bidders’ in the weeks to come. If such a bidding war does materialise, there may be additional upwards pressure on the Morrisons share price, as Amazon is predicted to make an offer according to McDonald.

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