Morrisons’ Private Equity Control Will Throw a Veil of Secrecy on Supermarket | Morrisons
Does it matter that the directors of Wm Morrison can soon sell Britain’s fourth largest supermarket chain to a private equity buyer?
Aldi and Lidl are privately owned by two separate but equally secret German billionaires. And Asda has long been owned by US retail conglomerate Walmart, which only provides a partial financial picture of its Leeds-based supermarket subsidiary.
It may not be long before Asda’s finances and corporate governance are even more obscure, now that a £ 6.8bn buyout, in tandem with the Issa brothers, has lifted the regulatory hurdle of a competition monitoring investigation.
The proposed takeover of Morrisons by US private equity firm Clayton, Dubilier & Rice, following the Asda regulatory move, would mean that a significant number of large UK supermarket chains – collectively employing a large number of people – are operating behind a curtain, where only small rays of light reveal their inner workings.
Among large retailers, Sainsbury’s and Tesco will be the only publicly traded – and therefore relatively transparent – companies, although the member-owned Co-op and employee-owned Waitrose give a similar level of insight into their operations.
However, this may not be the case in a few years. As one retail analyst put it to the Guardian last week: “The whole industry is now at stake. It is not unrealistic to say that there could not be a single listed UK supermarket for the foreseeable future.
The lack of transparency is one of the reasons for denouncing the growing domination of private equity in many commercial and industrial sectors. The motive of profit above all is another. It encourages asset stripping, a tendency to pretend to tackle the climate emergency, and unusual executive pay scales.
The offer for Morrisons highlights these concerns. It owns farms and food factories rather than buying from third-party suppliers. In recent years he has bought fish factories in Cornwall and even found himself owning fishing boats as part of the deal.
It has long-standing agreements with 2,700 UK farmers, who deliver livestock and produce directly to its 17 processing facilities, which supply 493 stores. The company, which employs around 121,000 people, claims to be the UK’s largest agricultural industry customer.
On top of that, it owns around 85% of its stores and there is a large surplus in its defined benefit pension plans.
All of this has been significantly undervalued by the London stock market, but seen as rich choices by private equity, especially when the company, like so many others, was hit by declining profits in 2020. The board has rejected a £ 5.5bn offer, but expects an upgrade soon.
Private equity firms normally take money from pension funds or sovereign wealth funds and buy troubled companies with a view to turning them around and selling them at a profit after three to five years.
At Morrisons, that probably means offloading stores and re-renting them, freeing up billions of pounds in one fell swoop. The company could then go into debt, generating a huge interest bill and making it vulnerable to future interest rate increases. Pension fund contributions and the family and relatively union-friendly atmosphere of the supermarket chain could be the next steps.
There have been signs that the Conservatives recognize that private companies and investment funds not only escape scrutiny, but often play by different rules. As Prime Minister Theresa May said in 2016, a heavy regulatory burden on listed companies was another incentive for them to go private. His government was therefore considering the regulations that should apply at all levels.
Sadly, there are few signs that the current government is concerned about cash-rich private equity firms buying temporarily undervalued UK companies.
But it should be. As a starting point, it should develop laws that create a level playing field and comply with the standards currently imposed on listed companies.
The consumer champion finally grows teeth
Are consumers finally getting the champion they deserve? The Autorité de la concurrence et des marchés is certainly choosing bigger targets these days and last week opened an investigation into Amazon and Google over concerns that they had not done enough to tackle the problem. widespread fake reviews on their websites.
The investigation follows the good work of the watchdog on behalf of the tenants. Some landlords must now be reimbursed for unfair land rents and allowed to buy full ownership of their property at a discount, after the CMA found out they had been overcharged and misled by developers.
Managing Director Andrea Coscelli said he feared “millions of online shoppers” will be misled by bogus reviews and spend their money on the basis of these recommendations. “
This area is not new to the CMA. He had harsh words with Facebook and eBay in 2019 after finding a thriving market for deceptive online reviews on their sites. The surprising thing, perhaps, is that it took two years to be wary of all the five star reviews found on Amazon, who surely was the elephant in the room from the start?
Andrew Tyrie, the former MP and chairman of the Treasury Select Committee, who stepped down as AMC chairman last year and is yet to be replaced, recently called, in the Financial Times, for the creation of a “more assertive, powerful and responsible regulator”.
The CMA should, he suggested, do more to find out what is going on in markets where consumers are aggrieved, and spend more time talking to small businesses and the public. “The AMC must put the consumer first,” he added. “And he must continue. “
If we still grapple with fake reviews online, it would seem hard not to agree.
Chevron might regret being the last petroleum dinosaur
The earthquake shock that ravaged the oil industry last month failed to stir at least one of the world’s largest fossil fuel companies.
U.S. oil giant Chevron suffered a humiliating shareholder rebellion last month after 61% of its investors voted in favor of a militant resolution calling on the company to do more to cut carbon emissions.
On the same day, ExxonMobil shareholders challenged the company’s board of directors by backing an activist fund determined to force it to define a climate strategy, and a court in The Hague ordered Royal Dutch Shell to cut back also its broadcasts.
The writing may be on the wall for the oil industry’s climate laggards, but Chevron doesn’t seem inclined to read it. Its chief financial officer, Pierre Breber, publicly insisted last week that he had no intention of following the lead of his European rivals by cutting back on oil and gas activities. Instead, he told an industry conference, Chevron would work to reduce its own operational emissions and spend a pittance to produce renewable energy.
In response, Follow This, the activist investor behind the Chevron rebellion and others, warned that Breber’s three-decade career in fossil fuels could have prevented the finance boss from imagining a business model other than the transformation of hydrocarbons into petrodollars.
It would take more than a lack of imagination for Chevron’s management to willfully ignore its own shareholders and turn a blind eye to the much more ambitious measures outlined by rival oil companies across the Atlantic.
BP expects its own oil and gas business to decline 40% by the end of the decade, and even Shell – which has come under criticism for its plans to expand its gas business – expects to let its oil production decline by about 1% per year. year in the decades to come.
Chevron’s response is undoubtedly shameless, but ignoring warnings from its own investors can also be foolish.