ALEX BRUMMER: Protect UK grocers from private equity predators

Britain’s ‘Big Four’ grocers did sterling service in the pandemic by keeping supply lines operating, moving online and keeping colleagues and customers safe.

In spite of this and continued sales growth since the economy has opened up, UK long investors failed miserably to value the supermarkets properly, making it open season for activists and private equity.

Asda left Walmart ownership for the Issa brothers, helped with a debt pile from TDR Capital. 

The failure of Morrisons buyer Fortress to offer more than vague pledges about the future of food production has led to speculation that plants will be hived off rapidly to pay down debt

Morrisons succumbed to an indifferent offer from Softbank and Koch Industries-backed Fortress. It is still being stalked by Apollo and another spurned suitor Clayton, Dubilier & Rice.

Czech sphinx Daniel Kretinsky has seen the value of his 9.9 per cent Sainsbury’s stake rise as investor optimism soars. Only Tesco is unsullied by new speculative interest.

Much of the concern about Morrisons stems from well-rehearsed concerns of private equity plundering behind closed doors – described by former Iceland boss Bill Grimsey as the ‘ugly face of capitalism’.

In the case of Morrisons the failure of buyer Fortress to offer more than vague strategy pledges about the future of food production has led to speculation that plants will be hived off rapidly to pay down debt. 

The very notion that Britain’s innovative grocery sector responsible for 3.9m people across the food chain has become the plaything of buccaneers and private equity firms, which offer minimum transparency, is of huge public interest.

Business Secretary Kwasi Kwarteng’s desire for a meeting with Morrisons chairman Andy Higginson is recognition of what is at stake. 

It is especially galling in that the supermarket groups demonstrated that, far from being slumbering giants, the sector is more alert to the digital revolution than many of its cohorts.

That advantage lives on, with Sainsbury’s reporting a 1.6 per cent lift in same-store sales in the quarter to May 26. 

Broker Jefferies notes that it has recorded a 9.9 per cent revenue lift in two years. Sainsbury’s has also joined forces with Deliveroo and Uber Eats to make sure that its Chop Chop rapid delivery service brings missing ingredients to the front door in record time.

The history of public-to-private takeovers is strewn with broken pledges. Once the target has been secured and existing management shuffles off clutching large cheques it becomes impossible to track developments. 

As business conditions change the new owners are able to drive a coach and horses through jobs and other promises.

The current union battle against Melrose GKN’s closure of a car components factory in Birmingham, employing 500 people, is a case in point. 

If ever there was a takeover which deserves full scrutiny in terms of both food security and future prices for consumers, it is Morrisons.

As Labour launches its ‘Buy British’ strategy it is a fantastic opportunity for Darren Jones, Labour chairman of the business committee, to make a splash by holding urgent hearings.

Debt trap

Public dissonance with private equity from Legal & General Investment Management and others is falling on deaf ears.

The hard-bitten scavengers, which have bid for no less than 366 UK enterprises this year, are showing boundless ambition.

Even the new UK National Security and Investment Act doesn’t seem to be a deterrent with aerospace engineers Ultra Electronics and Senior on the radar.

The confirmation by Bridgepoint that it will float on the main market in London, and raise £300million in the first instance, must be a good thing which should bring more openness. 

Less welcome may be the decision of the original ‘Barbarians at the Gate’ – KKR – to increase a presence in Mayfair with the aim of targeting UK companies.

As much as one admires the ambition of Stefano Pessina and the revival of Walgreens Boots, financed by KKR, the under-invested era of distant ownership of the chemist chain cannot be regarded as a roaring success. 

KKR Europe boss Mattia Caprioli appears unfazed about the backlash against public-to-private.

He might be less bullish if Rishi Sunak ended the tax break for debt finance.

Lady of leisure

Small shops and service providers in the City and Canary Wharf have been decimated by Covid.

If they looked to the Bank of England to lead the way back to the promised land they will be disappointed.

The Bank’s request that colleagues return to the office at least one day a week from September does not look very ‘can-do’.

After all, Goldman Sachs et al are back at their stations.

This post first appeared on Dailymail.co.uk