CDR scores Morrisons pension win over rival Fortress in takeover battle
Clayton, Dubilier & Rice (CDR), the private equity group vying to buy Morrisons, has agreed to support the supermarket chain’s pension scheme under its ownership, saying the scheme would be among “the best funded and best supported in the UK”.
CDR said it had reached an outline of a deal with trustees to provide secured funding for the scheme and support plans for a “buy out” of members within the next decade.
The agreement is a crucial win for CDR in the battle against a Fortress-led consortium to take over Morrisons. Fortress and its allies have held discussions with Morrisons’ pension trustees but are yet to reach an agreement.
Support of trustees could be crucial. Steve Southern, chairman of the trustees, last month raised the alarm over the bidding battle, saying it could “materially weaken” the pension scheme’s financial position.
Any private equity deal for Morrisons would be fueled by debt and banks that lend to fund the deal will have priority ahead of the pension scheme in a crisis. This has the potential to create a funding crunch.
CDR said today it had assuaged fears by agreeing to transferring some of Morrisons’ £6bn property portfolio to the Morrisons and Safeway pension schemes to ensure they are fully funded. Further properties will be transferred if needed and CDR has agreed to regularly share information with trustees “to ensure full awareness and alignment among stakeholders.” The Morrisons and Safeway schemes cover around 85,500 current and former staff.
Southern said today: “We are pleased with the progress made and CD&R’s ability to provide the necessary support and reassurance to the Schemes. CD&R has been proactive in its engagement with the Trustees, with discussions progressing positively and decisively, delivering a positive outcome for all members of Morrisons’ pension schemes."
Former Tesco boss Sir Terry Leahy, who is advising CDR on its bid, said: "We are delighted to have reached agreement with the Trustees, providing additional security and covenant support to the Schemes.”
New York-based CDR is squaring off against a consortium led by private equity house Fortress Investments. The pair have been locked in a bidding war that is now set to go to auction. Bidding has driven the offer price up to £7bn and pushed Morrisons’ share price to levels not seen in a decade. Bidders are attracted by Morrisons large property portfolio and its strong cash flow.
The escalating battle has sparked fears in some quarters that the eventual victor may asset strip or otherwise squeeze the company in order to drive returns on their investment. Both Fortress and CDR have given investors assurances to the contrary and said they will be responsible stewards of the business.
Andrew Higginson, chair of Morrisons, said: “The Morrisons Board is pleased that the Trustees and CD&R have engaged constructively and have now reached an agreement, which safeguards the interests of the members of Morrisons’ pension schemes.”
CDR said it would support the Morrisons and Safeway schemes in their plans for a member buyout in the next 10 years. A buyout is where private sector coverage is purchased for members of a company pension scheme. It removes the risk of interest rate changes and other investment headaches for pension schemes.
