Buyout firms CVC Capital Partners Ltd. and Carlyle Group LP (CG) are awaiting the outcome of Wm Morrison Supermarkets Plc (MRW)’s property review next week as they evaluate a bid for the U.K. grocer, said people familiar with the matter.
The value of the real estate has been emphasized by the buyout firms meeting with banks to discuss financing for a potential buyout, said two people, who asked not to be identified because they weren’t authorized to speak publicly.
Morrison estimates its freehold property is worth about 9 billion pounds ($15 billion), exceeding its market capitalization of 5.5 billion pounds. The company is due to announce the results of the review when the Bradford, England-based retailer reports annual results on March 13.
CVC and Carlyle were approached about working with members of the founding family of the 115-year-old company, people familiar with the matter told Bloomberg last month. A buyout would exceed 7 billion pounds and require a group of funds to work together, they said then. Other parties, including TPG Capital, have been contacted in recent weeks about participating, two people said.
Spokesmen for Morrison and CVC declined to comment as did officials for Carlyle and TPG.
The buyout firms are considering whether the grocer, once taken private, could be split into a property company that owns the land and a retailer that leases the space, the people said. Under-performing locations could also be closed with the land sold or leased to help pay down debt, said one of the people.
There is also thought to be potential in expanding the grocer’s online presence and smaller convenience stores, one of the people said. Morrison only started its Internet grocery service on Jan. 10 and has fewer than 100 convenience outlets.
Should the grocer announce similar steps next week to those being considered by the firms, interest in a buyout could diminish, the people said. Morrison isn’t expected to sell more than 10 percent of its real estate, one person said.
Splitting the property into a separate company “is not a feasible strategic avenue at this stage,” Jefferies International analysts led by James Grzinic said in a March 6 note, while adding that “the considerable asset-backing should not be ignored when considering the group’s prospects.”
Morrison, started in 1899 as a market stall selling eggs and butter, may next week report a slump in annual earnings amid increased competition from discounters such as Aldi and Lidl. Pretax profit in the year through January probably fell to about 730 million pounds from 879 million pounds a year earlier, according to the average of 16 estimates compiled by Bloomberg.
The company may say sales dropped to 17.8 billion pounds, based on the average of 19 estimates, less than a third of the annual revenue of market leader Tesco Plc. (TSCO) Morrison posted sales of 18.1 billion pounds in fiscal 2013.
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