Supermarket shares rocket after Morrisons rejects £5.5bn bid

Shares in the UK’s biggest supermarkets soared on Monday morning after Morrisons rejected a takeover bid from a US private equity giant.

Morrisons saw its share price increase by around a third soon after markets opened in London following a weekend of speculation around the future of the business.

On Sunday, Morrisons said it had been sent an “unsolicited, highly conditional, non-binding proposal” from Clayton, Dubilier & Rice, a New York-based private equity firm.

It rejected the offer after the board “unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects”.

But on Monday it appeared that shareholders thought CD&R might return with a higher bid. The original offer was for 230p per share, while shares were selling for 237p.

It means that investors are likely to be betting that a second bid, higher than 237p, will be on its way shortly – a practice known as risk arbitrage. The second bid could come from CD&R or from another suitor.

In Morrisons’ wake, shares in Sainsbury’s rose by 4.4%, Ocado had gained around 3%, and Tesco was trading up 2.7% shortly after markets opened in London.

The announcement of the bid sparked speculation that these businesses might also draw interest from big investors who have the resources to take the supermarkets private.

Nick Bubb, an independent retail analyst, said: “As noted by the FT today, 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 stock market today, with an additional focus on the bid potential for Sainsbury and Tesco as well.”

Any deal for Morrisons or the other supermarkets would follow the £6.8 billion buyout of Asda by the billionaire Issa brothers, which was approved by the competition watchdog last week.