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Morrisons shares pop 30% as CD&R plots fresh takeover bid

Watch: Morrisons shares surge 30% after it spurns £5.5bn takeover offer

Supermarket chain Morrisons (MRW.L) is gearing up for takeover negotiations, even as it rejected a £5.5bn ($7.6bn) bid from US private equity giant Clayton Dubilier & Rice (CD&R) at the weekend.

Shares in the grocer jumped more than 30% at the open in London following the news.

People close to the transaction told the FT that CD&R is likely to push ahead with an offer, which was rejected because Morrisons said it "significantly" undervalued the firm.

CD&R released a statement confirming that under takeover rules it has until 17 July to firm up its intentions.

Morrisons' shares jumped at the open following news of a takeover battle brewing. Chart: Yahoo Finance UK
Morrisons' shares jumped at the open following news of a takeover battle brewing. Chart: Yahoo Finance UK

"CD&R aren’t going away and we suspect a deal can be done in the 250p-260p area, so it should be a lively day for the sector on the stockmarket today, with an additional focus on the bid potential for Sainsbury and Tesco as well," said Nick Bubb, retailing analyst and consultant.

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Morrisons admitted on Saturday evening it had received the "unsolicited" and conditional cash offer from CD&R of 230 pence per share last Monday after Sky News reported the grocer was approached.

Britain's fourth largest supermarket said in a statement that its board had evaluated CD&R's conditional proposal along with its financial adviser, Rothschild & Co.

It said Morrisons's board members "unanimously concluded" the offer "significantly undervalued Morrisons and its future prospects" and rejected it on 17 June.

CD&R has issued a statement confirming a possible cash bid and has until 17 July to announce a firm intention to make an offer under UK takeover rules.

Morrisons is UK's fourth largest supermarket. Photo: PA
Morrisons is UK's fourth largest supermarket. Photo: PA (PA)

Sales at the FTSE 250 (^FTMC) firm increased by 2.7% in the 14 weeks to 9 May, but the supermarket chain had faced a £27m bill for COVID-related costs in the three months prior.

Read more: Morrisons turns down £5.5bn takeover bid from US private equity firm

The blockbuster move by CD&R — one of the biggest takeover firms in the world — would have been one of the UK's most high profile bids in the past year.

There was speculation in the market about Amazon's (AMZN) position on the deal.

"[Morrisons] owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up (think Toys R Us...)," said Neil Wilson, chief market analyst at Markets.com.

"There is a lot of PE money sniffing around the UK as valuations are low – we knew this before the pandemic. But its market share of the UK grocery market, its growing wholesale business and its existing tie-up with Amazon surely means it is not impossible the US tech giant will make an offer."

It follows a flurry of American private equity interest in UK firms.

In February, Zuber and Mohsin Issa and private equity firm TDR Capital purchased a majority stake in Asda from Walmart (WMT) in a deal worth £6.8bn.

Watch: What are SPACs?