The supermarket wars are on in the UK. 

Apollo Global Management has declared that it would be putting in a bid for WM Morrison, one of the country’s biggest supermarket chains.

In an announcement made last July 5, 2021, the company stated that it has begun its preparations for a bid for the grocery chain. However, Apollo has yet to approach the WM Morrison board of directors with a formal statement of intent.

Apollo’s announcement comes at the heels of a potential takeover by the Fortress Investment Group, a subsidiary of Tokyo-based conglomerate SoftBank Group Corporation. The takeover is currently valued at $8.7 billion.

Is the offer big enough?

Last July 3rd, a Fortress-driven consortium offered the Morrison board a $3.52 per share cash offer which would put the latter’s total value at $8.7 billion. The value of the Fortress bid surpasses that of a recent unsolicited offer from Clayton, Dubilier, & Rice (CD&R), a North American private equity company, which was previously declined by the supermarket chain.

While the Fortress offer gives the Morrison management team a very solid number to work with, one of the company’s key shareholders wants to hold out for something bigger. JO Hambro, ranked as Morrison’s eighth-largest shareholder has stated that the company’s value ought to be closer to $ 9 billion.

It should be noted at this point that Silchester, BlackRock, and Columbia Threadneedle, Morrison’s primary shareholders, have yet to give a formal statement regarding Fortress’ bid.

Don’t count us out

As Apollo makes its preparations for a formal bid and the ball has left Fortress’ court, it would be easy to assume that CD&R is officially out of the picture.

However, analysts from Barclays feel that this may not be the case. Historically, CD&R has a far larger retail footprint than either Apollo or Fortress. The equity firm owns MFG, one of the largest petrol forecourt chains in the UK, allowing it to forge bigger synergies with the supermarket chain.

Likewise, it has been noted that the Fortress bid does not involve any material sales or leaseback activity for any real estate owned by WM Morrison. The potential to explore the sale or redevelopment of such assets is an aspect that CD&R or any other possible bidders can consider for further leverage.

Presently, WM Morrison owns 80% of its real estate holdings, and anyone interested in buying them out should have a working plan for maximizing the value of these properties.