Shares in UK supermarket Morrisons surge 32% after rejected takeover bid

Surprise £5.5 billion private equity offer led by former Tesco boss Terry Leahy

Morrisons rejected a £5.5 billion takeover offer from a US private equity giant. Reuters 

Shares in the UK’s major supermarkets have surged after Morrisons rejected a £5.5 billion ($7.6bn) takeover offer from a US private equity giant backed by former Tesco boss Sir Terry Leahy.

Shares in Morrisons – Britain's fourth-largest supermarket by sales after Tesco, Sainsbury's and Asda – increased by 30 per cent on Monday after it turned down a takeover bid from private equity company Clayton, Dubilier & Rice.

Mr Leahy, the man who transformed Tesco into Britain's dominant supermarket group and the world's third-largest retailer during his 14 years as chief executive, is advising CD&R.

Morrisons’ board rejected the unsolicited offer on the basis that the “conditional proposal significantly undervalued Morrisons and its future prospects”.

However, it appeared shareholders thought CD&R might return with a higher bid. The original offer was for 230 pence a share, worth £5.52bn, while shares were selling for 237p.

Morrisons' shares were up 54.75p at 233.55p during early morning trading on Monday.

Shares in Sainsbury’s rose 4.4 per cent, while Ocado gained around 3 per cent and Tesco was trading up 2.7 per cent on hopes the whole sector could now be in play.

Under British takeover rules, CD&R has until July 17 to announce a firm intention to make an offer.

The private equity firm's offer pits Mr Leahy against Morrisons’ chairman Andrew Higginson and chief executive David Potts, two of his closest lieutenants at Tesco.

Mr Higginson spent 15 years on Tesco's main board, first as finance and strategy director and later as chief executive of the company's retailing services business, before leaving in 2012.

Mr Potts joined Tesco aged 16 as a shelf-stacker before working his way up to become chief executive of its Irish business, its UK retail stores business and then head of Tesco Asia.

He left in 2011 after being passed over for Mr Leahy's job.

The role went to Philip Clarke, who was sacked in 2014 shortly before an accounting scandal plunged Tesco into its biggest crisis and raised questions over Mr Leahy's legacy, tarnishing his reputation.

Any deal for Morrisons or the other supermarkets would follow the £6.8bn buyout of Asda by the billionaire Issa brothers, which was approved by the competition watchdog last week.