Any other business

Why private equity sharks are shopping at Morrisons

26 June 2021

9:00 AM

26 June 2021

9:00 AM

The late Sir Ken Morrison — founder of the eponymous supermarket chain that’s the latest UK target for US private equity — had the blunt manner of the Yorkshire cattle farmer he became in reluctant retirement after he was ousted by his own board. Criticising his successors from the floor at one of his last AGM attendances, he roared: ‘I have 1,000 bullocks… but you’ve got a lot more bullshit than me.’ So I’m sorry he’s not around to accost the suits from the New York firm of Clayton, Dubilier & Rice (and their adviser, former Tesco chief Sir Terry Leahy) on the intentions behind the takeover bid that sent Morrisons’ shares soaring on Monday.

This is the hottest event so far in the surge of foreign money chasing cheap UK assets that I described last week. Morrisons has a good-value reputation and a growing online business, linked to Amazon, but this has never been reflected in a share price which has stumbled for the past three years. Most of its stores are owned freehold, making them ripe for the ‘sale and leaseback’ devices that private equity financiers habitually use to syphon cash; and some of its manufacturing units could be ripe for disposal. Its margins are challenged by discounters such as Lidl but the New Yorkers clearly smell profit and — having had their first offer valuing the business at £8.7 billion firmly rejected — may find themselves up against competing bidders, even possibly including the mighty Amazon.

If shareholders secure a rich price, workers keep their jobs and consumers don’t lose choice, there’s nothing fundamentally to be feared from foreign takeovers — even when, as some City fund managers are currently saying, too many seem to be happening at once. Sir Ken Morrison resented the intrusive demands of public company governance and PR, and would have hated private equity raiders even more: I picture him waving his farmer’s thumbstick from behind a padlocked five-bar gate. But that’s the way the money’s moving: not even Ken could have stopped a stampeding herd.

Back to the cities

The Planning Bill that was due to be advanced by housing secretary Robert Jenrick — making it easier for developers to build in all but the most protected ‘zones’ and harder for residents to object — was reportedly a key factor (alongside HS2) in the Tories’ by-election loss of Chesham and Amersham. To avert nimbyist revolt right across the Home Counties, the reform looks likely to be diluted, despite Jenrick’s claim of a duty to help young people into home ownership and waffle about ‘community engagement’. The truth is Theresa May was probably right when she said letting developers loose in this way would lead to ‘the wrong homes being built in the wrong places’ — and more cynically, if there was a whiff of gerrymander in the aim of packing younger middle-class families into Tory heartlands, it was about to go horribly wrong.

A more positive outcome would be to pivot housing policy back towards creating affordable, eco-friendly city-centre homes, not least by repurposing the offices and high streets that will be left half-empty after the pandemic. Dan Labbad, chief executive of the Crown Estate, which owns a chunk of central London, said this week that he and other landlords face ‘obsolescence’ if they don’t rise to the challenge of urban renewal. That’s where creative investment in the housing sector (and in transport networks to go with it) needs to focus for the next decade, because that’s where young people prefer to live and work. Boxy little houses on small-town estates are so last century.

Who’ll pick up the yacht bill?

I was delighted when Downing Street embraced my ten-year campaign for a new royal yacht that would double as a floating trade platform for ‘global Britain’ — but unsurprised that the project immediately ran aground in a row between the Treasury, the Department for International Trade and the Ministry of Defence over who should pick up the £200 million bill. Ministers evidently overlooked the smart part of my proposal, which was to raise the funds via a City whip-round, barely a tithe of the annual bonus pot, to atone for past misdeeds. The trouble is that the bankers (as I observed last week) are no longer in the sin bin, owe the government nothing for its negligent handling of a post-Brexit financial services deal with Brussels, and suffered a Covid-reduced bonus round this spring.

But if that idea’s no longer a runner, here’s a better one: pass a bicorne hat along the House of Lords bench where the big party donors sit. A Financial Times analysis last year identified 22 recent peers, 15 of them Tories, who had given £50 million between them to the three main parties. With a combined net worth of at least £10 billion — and with the likes of Lords Cruddas and Spencer of Arlesford to set the pace — they’d barely notice the price of a royal flagship to lead their private yacht flotilla.

Beware of baseball caps

My item on old and new City dress codes generated plenty of nostalgia but not much enlightenment as to nuances of modern form. One reader regretted the passing, as an indicator of rank, of the detached stiff collar — last worn among my own cohort by the former Barclays chief executive John Varley. When professional starching became too expensive, says my correspondent, it was still possible to buy smart disposable paper collars from AJ Neale, the cut-price Broad Street shirtmaker: ‘They tended to disintegrate on hot days, but the upside was that you could always rip off a bit of collar to write down the phone number of the gorgeous blonde in the Jamaica Wine House.’

Oops, that really does sound like the 1980s. Today, casual flirtation is off-limits but at least you can wear what you like without giving away which City tribe you belong to. Except perhaps that a Brooks Brothers suit and a baseball cap identifies a private-equity shark on the prowl.

Got something to add? Join the discussion and comment below.

You might disagree with half of it, but you’ll enjoy reading all of it. Try your first 10 weeks for just $10

Show comments