The bidding war in the battle for control of Morrisons (LSE: MRW) has propelled the shares skywards, much to the benefit of shareholders. As a result, the Morrisons share price has climbed more than 50% over the past 12 months, way outstripping the FTSE 100. It has easily beaten Tesco too, with the biggest name in the sector down 6% over the same time.
Shares in Sainsbury, meanwhile, have beaten Morrisons over the year, even in the absence of any bids. The Sainsbury share price did spike in the hope of a takeover attempt, but it was already up 60% in 12 months anyway. Morrisons had been the slowest in the sector to emerge from the pandemic drubbing, mind. So it’s perhaps not a surprise that it attracted the attention of private equity folks.
There does seem to be a fair bit of investing cash sloshing around. And essential sectors like the groceries business are clearly attracting attention. So it it game over for Morrisons as a listed business? Or should we expect further twists in the tale?
Could the Morrisons share price go even higher?
The apparent winning bid from Clayton, Dubilier & Rice (CD&R) values Morrisons at £7bn. That equates to a Morrisons share price of 285p. The current price, of 290p, suggests investors don’t think it’s all over yet. I mean, who pays 290p for a share if they expect to get only 285p for it when the takeover completes?
Is the other combatant in the acquisition battle, Fortress Investment Group, out of it now? There’s nothing to stop that firm making a fresh bid, in excess of the £7bn valuation, if it thinks Morrisons is worth more. Will it happen? I obviously don’t know, but I wouldn’t be at all surprised. After all, we have seen the bids leapfrogging each other so far. And the Morrisons board having recommended the CD&R bid doesn’t mean much — it had also recommended the previous Fortress bid at £6.7bn.
Fortress has said it’s “considering its options“. But there are more than two companies out there with huge piles of cash and that like the occasional acquisition to help expand their market reach. I’m thinking US companies, which often are really not too worried about paying super high valuations to get their hands on their targets. That could inflate the Morrisons share price even further.
Among them is Amazon. Think that’s unlikely? I did, until analysts started taking rumours seriously. And when I think about it further, it starts to make sense as a way to expand into the UK market. Amazon has a current market cap of $1.75trn. Yes, trillion. Its own stock is on a trailing P/E of 60, so I doubt it would be fazed by the valuation needed to get its hands on Morrisons. In fact, it could be small change for a company with annual revenue heading north of $400bn per year.
What I’ll do
So what’s my take on all this? I’d assumed it was a done deal when the CD&R bid was recommended. But with the subsequent talk we’ve been hearing, I’m now not so convinced. What will I do? Well, nothing, other than maybe fetch some popcorn, watch and enjoy. It’s all too uncertain for me and I prefer long-term investments so I won’t be buying.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Morrisons and Tesco and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.