Wm Morrison Xmas sales could trigger 2015 buyout or rights issue speculation - Analysis
* Buyout firms could look again if figures improve
* Xmas sales seen as key to CEO’s future
* Rights issue, asset sales talk could arise if numbers disappoint
Wm Morrison [LON:MRW] buyout or rights issue speculation could resurface in the New Year, according to several M&A advisers following the situation. The company faces its own crunch time in 2015 as pressure builds on CEO Dalton Philips and incoming chairman Andy Higginson to deliver, they said.
Morrisons may be forced to review every inch of its business along the lines of Tesco’s [LON:TSCO] ongoing review if a new pricing strategy and cost cutting fail to bite, the advisers said. Asset sales could come on the agenda if extra capital and a change of strategy is required, they warned.
Buyout funds backed off take-private plans in early 2014 after running the numbers and determining competition from other supermarkets was too strong, said the first adviser, who is familiar with one fund’s process. But, increasing pressure on Tesco and J Sainsbury [LON:SBRY] during 2H14 could see firms reopening their Morrisons files, this adviser said.
Funds should be expected to have in mind the numbers needed for them to begin looking again, a second adviser said. As the focus on Tesco inevitably subsides, Morrisons will find itself centre-stage again in 2015, the second said. “They’ve been quite lucky for six months,” this adviser said, describing Morrisons as a “lame duck”.
Philips’ job could hang on Christmas numbers to be released on 13 January 2015, an industry analyst speculated. In November it was thought Morrisons would emerge from Christmas in better shape following an analyst and investor presentation. But, expectations have come off somewhat through December, the analyst said.
One option available to Higginson is leading a take-private consortium himself, the first adviser claimed. The possibility cannot be ruled out due to Higginson being an intellectually tough and commercially mined individual, a third said. Higginson formally takes up the Chairman role in spring 2015. He joined the Morrisons board in October after stepping down from chairing Poundland [LON:PLND].
But funds should remain wary of backing a take-private based on current trading, two other advisers said. This means Christmas sales numbers will be the most watched supermarket sector figures in years, one said. Funds are to unlikely to have the stomach to handle two years of negative cash flow if the outlook for 2015 disappoints, they said.
Buyout groups would require Higginson brings in a stronger management team, meaning Philips could be gone either way, the first adviser claimed. An early move on management could reveal the chairman’s intentions, this adviser explained. Former Tesco director Higginson would be in a position to cherry pick top executives from the ailing giant, while also looking to the likes of Poundland.
Meanwhile, buyers exist for Morrison’s manufacturing divisions, one adviser said. While it might have to take a hair cut on the bread business, the likes of Greencore [LON:GNC] and Bakkavor could be interested in Morrison’s pies and fish arms. Its meat business could be divided up between existing competitors as well, this adviser suggested.
A Morrisons spokesperson declined to comment on speculation of a buyout, rights issue or asset sales. The spokesperson pointed to Philips’ comments made in November that it was making good progress on plans set out in March to generate GBP 2bn in cash and GBP 1bn in cost savings over three years.
Morrisons said in November that it expects underlying 2014/15 profit before tax to be in a range of GBP 335m to GBP 365m (previously GBP 325m to GBP 375m). The 13 January Christmas trading statement will cover the six weeks to 4 January. Its financial year-end is 1 February, with preliminary results announced on 12 March.
