RUTH SUNDERLAND: Morrisons directors were not obliged to play one bidder against the other – they could have mounted a defence instead
- Both bidders have spoken warm words about their good intentions and respecting the spirit of the late Sir Ken Morrison
- These are presented as promises but are likely to be classed under the takeover rules as ‘intentions’, something much weaker
- Past experience in other bids shows it is dangerous to rely on these assurances
Handling takeover bids is a tricky business for chairmen and directors. Even seasoned veterans can find themselves criticised almost whatever they do, in these highly charged and complex situations.
The bid battle for Morrisons has thrown up vexing questions for the board, which has just given its blessing to the latest offer from US buyout firm CD&R.
Most non-City observers might see this as a very powerful endorsement. Indeed it might be, had the directors not already given their recommendation to two earlier offers from US private equity-led consortium Fortress.
Shopping around: In the world of investment bankers and lawyers this switching of horses is deemed reasonable
In the world of investment bankers and lawyers this switching of horses is deemed reasonable. Putting out a recommended offer gets things moving, is one argument.
Another is that both bids for Morrisons are ‘schemes of arrangement’ which need to be agreed with the target company, so recommendations are de rigueur. Out here in the real world, for a board to flip its allegiance in this way looks odd.
Directors and chairmen are very well paid individuals whose duty it is to look after the best long-term interests of investors and other stakeholders.
Most lay people would expect a board recommendation for a bid to be a deeply considered judgment on the best future ownership of the company.
So it is jarring when recommendations are strewn around like confetti. As one analyst sarcastically pointed out this weekend, no doubt Morrisons investors will ‘warmly reflect’ upon the wisdom of a board recommending an initial offer from Fortress, when higher ones were just around the corner.
Of course, the directors didn’t know for definite a better offer would come. But they did recommend the Fortress bids in the full knowledge of open interest from a rival.
The extension of the ‘put up or shut up deadline’ for CD&R was a strong signal a better price was likely to transpire.
It is perfectly possible the board will flip again. Fortress is expected to come back with more, at which point presumably the Morrisons directors will change again.
Whatever the technical reasons, for a board to swing around like weather-vanes is not a great look. It suggests the lack of a firm grasp on how much their business is really worth, with changes of recommendation based purely on price. Yet that should not be the only criterion. Both bidders have spoken warm words about their good intentions on employment, protecting the supply chain, no asset-stripping and respecting the spirit of the late Sir Ken Morrison.
These are presented as promises but are likely to be classed under the takeover rules as ‘intentions’, something much weaker.
These only hold for up to one year, are not legally enforceable and can be changed if there is deemed to be good reason.
Past experience in other bids shows it is dangerous to rely on these assurances.
The quality of Morrisons’ future ownership matters intensely to the whole country. Takeover bids may be exciting and lucrative for private equity chieftains, bosses of target companies, bankers, PRs and other advisers.
But they are also de-stabilising. They distract attention from the day-to-day operations of the business and create anxiety among employees.
The directors were not obliged to become entangled in a game of playing off one bidder against the other. They could always have mounted a spirited defence instead.