The structure for Saturday’s auction for Morrisons is technically flawless, as argued in this column on Wednesday, but there is still a problem: only one bidder has reached agreement with the trustees of the supermarket group’s pension fund.
The auction can happen regardless, but the pension position is unsatisfactory, to put it mildly. Morrisons will be loaded with debt whichever bidder wins, so ensuring the schemes can complete their journey to buyout by a big insurance firm, which is the trustees’ long-term plan, ought to be a top priority.
Clayton, Dubilier & Rice (CD&R) stepped up to the mark two weeks ago and secured a deal with the trustees, primarily by granting security over £660m worth of Morrisons’ properties if it ends up as owner. But the Fortress Investment consortium hasn’t yet made a formal commitment, despite muttering since early July about its good intentions towards pensioners.
Discussions with the trustees are understood to be continuing, but a firm agreement ought to have been nailed down by now. The details of CD&R’s approved arrangements are in its offer document, so Fortress can’t plead that there’s much mystery about what is required.
What would happen if Fortress were to win the weekend auction without a pension deal in place? Well, Morrisons’ board would be in an awkward spot. If the directors mean half of what they’ve said about looking out for “stakeholder” interests, they surely couldn’t back Fortress in good faith until the pension box is ticked. That would be a messy postscript to an auction process that is supposed to deliver a clean outcome.
In practice, it is hard to believe Fortress would jeopardise a £7bn-plus takeover for the sake of a few securities over stores, so an agreement on pensions is still the way to bet. But the foot-dragging already looks poor. Fortress still has a day or two to rectify matters. Get on with it.
Record GDP rise came before confidence ‘fell off a cliff’
Terrific news: the economy grew by a record 5.5% in the second quarter of this year, not the 4.8% that the Office for National Statistics had originally estimated. Unfortunately, the March to June quarter feels like ancient history already. The surge in energy prices had barely started; supply chains weren’t creaking under the strain of skill shortages; and filling your car with petrol was not a voyage into the unknown.
The Institute of Directors’ report on Thursday stating that confidence “fell off a cliff” in September, according to its latest poll of boardroom opinion, chimes with evidence from elsewhere. Senior bankers talk privately of a collapse in business sentiment in the past fortnight, among small and large companies. Tony Danker, the CBI’s director general, referred last week to “a total mindset shift from growing to coping” after speaking with hundreds of business leaders.
The mood could improve, of course, when queues on forecourts clear and energy prices (probably) subside. But the hot debate in business circles is about which supply chain will buckle next, hit by either a labour shortage or a rise in raw material costs. Housebuilding is the suggestion in more than one quarter. That idea may or may not prove correct, but the shift in wider tone in boardrooms is impossible to miss. It has happened very suddenly.
Could Oxford Nanopore be the next Illumina?
“It’s an urban myth that you can do much better on Nasdaq,” said Gordon Sanghera, the chief executive of Oxford Nanopore, a few weeks ago. He has now proved his point in spades.
In Nanopore’s storming stock market debut on Thursday, the shares climbed 44% above their float price. The company is now worth £4.9bn and, at that valuation, would soon be banging on the door of the FTSE 100 index if it didn’t have a disqualifying “anti-takeover” share mechanism.
The valuation is even more impressive when you see that projected revenues are only £165m-£175m for 2023 from the core gene-sequencing unit. That implied revenue rating is racier than most you’ll find in New York.
The long-term hope for Nanopore is that it develops into another Illumina, the US gene-sequencing company that grew from nothing to a current valuation of $60bn (£44.5bn). It will be many years before that possible plotline becomes clearer. But, after similarly roaring stock market receptions for the payments processor Wise and the cybersecurity firm Darktrace, it is becoming harder and harder to characterise London investors as plodders who won’t take a punt on tech.