News & Analysis

Morrisons stock volatility increases as government gets involved in takeover talks

Andrew Saks, Friday, 2 July 2021

It is not often that anything positive comes from government interference in private sector enterprise.

Usually, any involvement with public sector bureaucrats results in socialist 1970s-style inefficiency. It has been proven during the trial of both free market and government-operated economic models in several regions of the world since the end of the industrial revolution that business is best when it is left to the businessmen.

However, in the case of thwarting unfair practice, that is a different matter and this is where independent adjudicators from elected positions in public office come in.

WM Morrison Supermarkets PLC, a London Stock Exchange-listed retail food supply giant, has been in the headlines almost consistently for two weeks as a result of the proposed £5.5 billion takeover by Clayton Dubilier & Rice (CDR).

Since that bid was made, analysts have looked at the figures and valued the supermarket at £1 billion more than the offer made by CDR, with yesterday's clamour from the City indicating that the real value of the company is £6.5 billion.

Now, after two weeks of watching from the sidelines, the British government's Chairman of the House of Commons' Business Committee Darren Jones MP has written a letter to the Competition and Markets Authority (CMA) which is the regulatory authority that deals with monopolies, which raised a concern that "British supermarkets are the latest area of interest for private equity and other buyers using significant amounts of debt. Some stakeholders have raised concerns about what this might mean for the protection of jobs, pension funds and supermarkets presence on British high streets."

Mr Jones, a socialist who represents the Labour party in one of the constituencies in Bristol is now keen to  understand what regulatory oversight is in place to ensure any future transactions protect consumers and workers.

That may appear to take a similar line to what would usually be trotted out by a workers' union, however if investigated at CMA level, any deal could be scuppered and this has led to volatility.

Analyst and macroeconomic investor Jonathan Smith of the Motley Fool aired his view two days ago in an observation on Yahoo Finance, saying that he was staying away from any investment in Morrisons despite the business performing well.

"In the Q1 trading update, total sales were up 5.3% and it said it expects “another year of meaningful profit growth”. But the jump in price (adding a 28% premium) makes me think that this is now the fair price until better-than-expected results come out in the future. These results would need to beat the already optimistic outlook in order to push the Morrisons share price even higher" he said.

"Based on that, I won’t be investing right now in Morrisons. I think the potential upside is too small compared to the risk involved" said Mr Smith.

Morrisons share price is down slightly today, perhaps as a result of the potential outcome of any investigation into the takeover bid by the CMA, however it is still very much up compared to last week.

 Once again this is a case of any media attention, regardless of its potential impact, c

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