Grocery Guru

Grocery Guru Episode #33: Clayton, Dubilier & Rice Bid for Morrison's Supermarket - Amazon May Bid?

Grocery Guru Episode #33: Clayton, Dubilier & Rice Bid for Morrison's Supermarket - Amazon May Bid?
Grocery Guru
Grocery Guru Episode #33: Clayton, Dubilier & Rice Bid for Morrison's Supermarket - Amazon May Bid?
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The Bid For Morrison’s Supermarket

Join Andrew Grant and Darren A. Smith in the thirty-third episode of the Grocery Guru. They discuss the bid from United States private equity firm Clayton, Dubilier & Rice, of which Terry Leahy is a Board Member, to buy Morrison’s Supermarkets. But will Amazon now make a bid too?

Word Morrisons in green with yellow dots

Join Darren and Andrew as they discuss the bid for Morrison’s supermarket

You Can View the Full Bid For Morrison’s Supermarket Transcript Below

Darren A. Smith:

Welcome to episode 33 of the Grocery Guru. And we are here today with that guru, Andrew Grant. How are you?

Andrew Grant:

Yeah, morning Darren. Yes, very good. Thank you very much.

Darren A. Smith:

Now, we’ve both had the lurgy, but that’s not why we’re on video, to tell everyone we’ve had the lurgy.

Andrew Grant:

No, I think you’re right. As I think you put it, we’ve done so little social interaction in the last 15 months. At the minute, you actually come near anybody else, you catch something.

Darren A. Smith:

Does seem that way, does seem that way. But more interestingly, for our viewers out there, what’s in our postbox, mail bag, on your lips, on your mind today?

Andrew Grant:

Well, there’s only one big news in the world of grocery today, I’m sure nobody’s missed it. But it’s the possible bid for Morrisons. Interestingly, we’re doing this a couple of days late. It’s Monday morning. The news broke Friday, that… What are they called? Clayton Dubilier & Rice? American venture capital group. Best known for floating B&M, Home Bargains.

Darren A. Smith:

Oh! I didn’t know that. Okay.

Andrew Grant:

And have got ex Tesco CEO Terry Leahy on their board. So, they’ve got a bit of knowledge and a bit of experience. But yeah, that news broke Friday evening. And this morning, Morrisons’ shares have gone up over 30%.

Darren A. Smith:

So, the news is that this venture capitalist, what do they want to do? I know you know this.

Andrew Grant:

Well, interestingly the supermarkets are incredibly good value. We’ve talked so many times in these sessions of how well we did over the pandemic, et cetera. But that hasn’t been reflected in their share prices.

Darren A. Smith:

No.

Andrew Grant:

And there was an article I read yesterday, to say that Morrisons’ share price prior to today, was the same as it was 20 years ago.

Darren A. Smith:

Wow! Okay.

Andrew Grant:

So, all that effort, hard work by 115,000 people who work for Morrisons has added effectively no value in 20 years.

Darren A. Smith:

And just remind anyone who hasn’t seen the previous episodes, we’ve talked about the pandemic, that supermarket sales have gone up roughly 10%. So they’ve done very well, if one believes. But as an example, it’s cost Sainsbury’s 468 million in COVID costs, which means their profits went down by about 40%. So, they seemingly have done well, but they haven’t. Sorry, back to you.

Andrew Grant:

Yeah. And obviously that’s what shareholders are most interested in, are they making profits? And yeah, Tesco had its Q1 results out on Friday. Sales flat, if not slightly declining. Because as we’ve talked about, they’re now like for like with the massive boom last year, and everybody’s going out to restaurants and pubs again.

Darren A. Smith:

Yes, yes.

Andrew Grant:

So yeah, the share prices of all the quoted retailers are really struggling. And they’re saying that this might create a feeding frenzy, even Tesco is not too big to be taken over.

Darren A. Smith:

Well, that’s very true. So this venture capitalist comes in, so what are we thinking? They might buy Morrisons? Morrisons are currently number four, their market share’s about 11%. Have I got that right?

Andrew Grant:

Yep.

Darren A. Smith:

But we’ve also got in the wings here, Mr. Bezos and Amazon. What’s your take on that?

Andrew Grant:

Yeah, your mind is thinking the same way as me, yeah. Morrisons have a pretty huge distribution agreement with Amazon. So, if you want Amazon Fresh, a lot of it is actually Morrisons’ product. Now that a bid process has been initiated, I think 17th of July. So, about four weeks, anybody can basically bid to Morrisons. And for Mr. Bezos, I mean, he’s probably got five or six billion, which is what Morrisons are currently valued at, in his back pocket. And just think, for Amazon, you immediately become the fourth player in the UK market. With probably, very few competition concerns, because they’re not a player at the moment.

Darren A. Smith:

That’s very true. Sorry, go on.

Andrew Grant:

So you buy yourself a massive slug of the UK market, it must be of interest to them. And that would really set the cat amongst the pigeons. I think if Morrisons went to a venture capitalist group, bit like ASDA, you would worry would they just strip out all the assets? Would they forget the shopper? Would it be a bit like Debenhams? Just an asset stripping exercise. I don’t think though, given who Clayton Dubilier & Rice have got on their board, but you always worry with venture capitalists.

However, if Amazon bought them, that just changes the whole chess game. It would… I think it would seriously freak out the likes of Sainsbury’s and Tesco.

Darren A. Smith:

I think it would, and quite rightly. I mean, you’ve got Amazon who’ll come in, they’ll be fourth players. So at the moment, they are messing about with a few stores. They’ve got a tie-up with Morrisons, as you said, in the UK. We’ve talked about Amazon Fresh, where there was the shop that you could go in, you didn’t go through any checkout, you walked in, grab your groceries, and buggered off type thing. But they go from a few stores in the UK to having 10%, 11%. Wow, that’s big.

And let’s imagine that happens for a moment, Amazon become the fourth player. What do you see is the impact?

Andrew Grant:

Well remember, Amazon is seen as a tech stock. They’re not seen by the shareholders or the [inaudible 00:05:59] in the same way as a grocer. So, as Amazon have done in the book market, and whatever market, Amazon could desire to invest over a 15 year period to operate Morrisons at a loss.

Darren A. Smith:

Yeah.

Andrew Grant:

They could come in and afford to go, “Right, we drop all prices 25% tomorrow.” And it wouldn’t affect Amazon’s stock price, or its profits or prospects. It’s like… I’m trying to think of the analogy. It’s sort of like the dinosaurs wandering around and some fantastic new beast turns up, that just eats them.

Darren A. Smith:

Love the analogy!

Andrew Grant:

Or I don’t know, steam driven cars and all of a sudden somebody comes along with a petrol car and it’s just game changer. I think it would be a game changer, because Amazon would not have to play by the rules that we’re sort of used to in the UK. They could just decide, “We’re going for it.”

Darren A. Smith:

Change the rules. That’s just reminded me for a moment of that famous quote from Henry Ford where someone said something like, “Why didn’t you ask the customers what they wanted, or the shoppers?” And he said, “Well, if I’d asked them they would have wanted faster horses.”

Andrew Grant:

Yes, I like that.

Darren A. Smith:

Brilliant, isn’t it? So, Amazon aren’t looking for faster horses, they’re looking for, “Okay, we’re going to bring in the motor car.”

Andrew Grant:

Yeah.

Darren A. Smith:

Could be a game changer.

Andrew Grant:

Unless, to build on your analogy, Amazon are thinking, well actually supermarkets are in their own way dinosaurs and we don’t need to buy 155-odd Morrisons stores. We’ll just keep plugging away at home delivery and take it over that way.

Darren A. Smith:

Could be, could be. All right, so scary thoughts; you said it’s roughly four weeks before we find out. So over the next four weeks, there’s a bidding frenzy going on and then we find the winner, is that how this thing works?

Andrew Grant:

Well no, it depends. I mean, Clayton Dubilier & Rice have shown interest, therefore they have four weeks to put up or shut up. Then they can’t make any other bid for six months. But obviously, anybody else; other private equity firms, Amazon, whoever, during this process, a bit like a feeding frenzy. They can jump into the pond and start making splashes themselves. So, it’s going to be a fascinating four weeks.

You know I’m famous for making my predictions, yeah, I think Morrisons will be sold in four weeks. I won’t say to who. But I’d probably put a £5 bet on Amazon.

Darren A. Smith:

Okay, all right. Well, you heard it here. Andrew’s put £5 of his money and anyone who knows Andrew knows that rarely happens.

Andrew Grant:

Well, I said £5 but I’ll charge it against you, Darren.

Darren A. Smith:

Okay, that makes sense. All right, Andrew, thank you for your guru-ing this week. That’s useful, good insight. And we’ll talk to you next week. Hope the lurgy-

Andrew Grant:

[crosstalk 00:09:00] Take care.

Darren A. Smith:

Take care, bye.

Take a look at the Bid For Morrison’s Supermarket video on our YouTube Channel. Also, check out our award-winning blog.


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