NEWPORT, WALES, UNITED KINGDOM – 2021/01/09: A shopper who saw her push her groceries outside the Morrisons supermarket in Wales.

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WM Morrison, Britain’s fourth largest supermarket chain, could become the target of an international bidding war.

Apollo Global Management announced Monday that it is considering a competing offer for the retailer after it signed a $ 8.7 billion acquisition agreement with SoftBank’s own Fortress Investment Group.

In a statement, Apollo said it was in the preliminary stages of evaluating a potential offer but has yet to contact the Morrisons board of directors.

On Saturday, the board recommended a cash offer of 254 pence per share ($ 3.52 per share) from a Fortress-led consortium that includes the Canada Pension Plan Investment Board and Koch Real Estate Investments. The offer values ​​the company at £ 6.3 billion.

The offer exceeded an earlier unsolicited application from US private equity firm Clayton, Dubilier & Rice (CD&R) that Morrisons rejected last month.

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However, Morrisons’ eighth largest shareholder JO Hambro said last week it would see an offer of at least £ 6.5 billion ($ 9 billion) for the company.

The three largest shareholders – Silchester, BlackRock and Columbia Threadneedle – together make up more than 35% of the shares and have not yet commented publicly on the Fortress proposal.

Morrisons stocks rose more than 11% on Monday as the race heated up, while stocks in UK supermarket groups Sainsbury’s, Marks & Spencer and Tesco also rose.

Not the end of the saga

All eyes are now on whether CD&R will get back into the race.

Barclays analysts on Monday highlighted two main reasons the private equity firm may be able to pay more than Fortress’ agreed offer.

“First, CD&R has a greater retail presence in the UK than Fortress – the former owns the MFG chain of gas stations, the latter owns Majestic Wine – so we expect CD&R to generate greater synergies with Morrison,” said Barclays Managing Director of European Retail Equity Research, James Anstead, in the note.

NEW YORK – Joshua Harris, Apollo Global Management Co-Founder and Senior Managing Director, speaks at the CNBC Institutional Investor Delivering Alpha conference on September 19 in New York City.

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Second, Fortress has indicated that it is not planning any significant sale and leaseback activity in relation to Morrison’s storefront – CD&R (and / or other potential bidders) could potentially come up with more if it chooses to explore such real estate activities. ”

Meanwhile, Bank of America analysts highlighted that Koch Real Estate’s involvement in the Fortress-led consortium deal suggests that it might after all be possible to consider store sales or leasebacks (where real estate would be sold but rented back) .

“Morrisons owns more than 80% of its real estate and we would expect any new owner to research the potential for value within real estate,” they added.

Why is Morrison so popular?

This ownership of much of its store, along with a deeply integrated supply chain, makes Morrisons a “bargain” compared to many of its overseas competitors, said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.

Streeter noted that Morrisons’ digital sales rose 113% in the most recent quarter. It also has a partnership with Amazon Prime and sells products through Amazon Fresh’s brick and mortar store in London.

“WM Morrison’s tentacles span multiple supply chains where innovative products are developed,” she said.

“As the UK’s second largest food manufacturer, many farmers and producers rely on the grocer, not to mention the staff working in their shops and factories, and this support network could be dismantled.”

As such, Streeter noted that the issue of “asset stripping” and “store sales” is a political one; Morrisons has reportedly written to Members of Parliament to address concerns.

UK supermarket speculation swirling

The upward movements in the share prices of competing chains suggest that some investor speculation about broader interest in the sector is mounting.

Vesa Equity Investments owned by US billionaire Daniel Kretinsky has acquired a stake in Sainsbury’s and, according to Refinitiv data, is now the second largest shareholder with just under 10%.

However, Streeter noted that while the UK grocery market might look strong due to the growth in online sales last year, it has cooled somewhat as retail sales in grocery retail fell 5.7% in May as restrictions were eased and consumers returned to life in restaurants. This will likely lead to further price competition that could eat up margins, she suggested.

“So rather than turning into a bun dispute, M&A activity will likely be more of a dignified search of other potential targets,” she added.