Wm Morrison, a private equity-owned UK supermarket chain, has reached a £2.5bn agreement to sell its petrol forecourts to Motor Fuel Group. This will help Morrisons to improve its balance sheet.
Clayton, Dubilier & Rice, a US-based buyout firm, owns both companies. Under the terms, Morrisons will retain a 20% stake in the expanded MFG and receive approximately £1.8bn-£1.9bn.
Morrisons is looking to boost its sales under Rami Baitieh, its new chief executive. It also wants to pay off its £5.5bn in net debt after a sale-and leaseback deal on some of its property.
Sir Terry Leahy is a senior advisor at CD&R, and the chair of Morrisons. He said that the deal will strengthen the balance sheet for the grocer, but insisted that it was “not the only consideration”.
The companies stated that the purchase would allow MFG expand its electric vehicle footprint in the UK from 130 sites to 800 by 2030. It will also allow MFG to bolster its convenience stores offering.
Leahy refused to reveal how Morrisons would use the new capital, saying: “We do not give a breakdown of the investment [into the business] and reduction in debt.” Leahy said that “nothing would come out of the company” and that no proceeds would be returned to CD&R.
Clive Black, retail analyst at Shore Capital said: “Should CD&R, which has owned MFG for many years, sell it, then that equity holding in Morrisons might be relevant.”
Morrisons “very stretched” balance sheet was likely the main reason for the deal, he said, “and a notable reduction in debt would be welcomed”.
The transaction on Tuesday is similar to a private equity deal made by TDR, a rival firm last year. TDR owned supermarket chain Asda as well as forecourt company EG Group jointly with the Issa Brothers. The grocer bought 350 petrol stations as well as more than 1,000 food to go sites that were owned by EG Group.
CD&R acquired MFG in 2005 for £500mn. The buyout group expanded its business, including through acquisitions. MFG is the UK’s largest independent petrol forecourt with approximately 900 sites.
The company is attempting to capitalize on the move to electric vehicles by developing ultrarapid charger hubs for this type of vehicle.
Leahy stated that Morrisons petrol station business is “better left in the hands of specialists”. . . That knows how to build forecourts. . . “.
After a bid war, CD&R and a rival company agreed to a nearly £10bn deal in 2021 for the purchase of Morrisons. As interest rates rise, the acquisition, which is funded by billions in debt, has been under pressure.
Morrisons has lost market share due to fierce competition from other supermarkets.
Asda, Morrisons and Tesco reported growth of 2.8% and 2.3% in non-fuel retail sales in their respective third quarters ending September and July 2023. Sainsbury’s and Tesco’s quarters ending August and September were 8.4% and 6.6% respectively. According to Moody’s, both Tesco and Sainsbury’s increased their market share over Asda and Morrisons during the period.