CMA steps up probe into Morrisons deal takeover: Competition fears could force petrol station sale
Regulators have launched an investigation into the £7billion private equity takeover of Morrisons.
The Competition and Markets Authority (CMA) will examine whether the buyout of the supermarket group by Clayton, Dubilier & Rice (CD&R) will result in higher fuel prices on forecourts around the country.
New York-based CD&R already owns 920 petrol stations in the UK through its Motor Fuel Group (MFG) business it bought in 2015. Morrisons owns 335.
Retail knights: Sir Ken Morrison (left) with former Tesco boss Sir Terry Leahy (right), a longtime adviser to CD&R
It is feared that merging the two businesses will create a group controlling more than 1,200 of the country’s 8,000 petrol stations –reducing competition and hitting drivers in the pocket.
CD&R also plans to expand Morrisons’ convenience-store chain across MFG forecourts.
Former Tesco boss Sir Terry Leahy, a longtime adviser to CD&R, was instrumental in the deal and has taken over as chairman of Morrisons.
The takeover reunited Leahy with the supermarket’s chief executive David Potts, who worked with him at Tesco.
Launching its investigation, the CMA said it will look into whether the deal ‘may be expected to result in a substantial lessening of competition’.
An industry source said the takeover hands CD&R a ‘dangerously high’ number of forecourts in the UK.
The source added that in some instances it would leave the group in control of the only petrol stations in an area, giving it the power to control prices.
The CMA could force MFG or Morrisons to sell petrol stations in order for the deal to go ahead.
CD&R bought Morrisons last October after a protracted bidding war against rival private equity firm Fortress.
Just days later, the CMA filed an enforcement notice requiring Morrisons to stay independent while it decides whether it needs to investigate the deal.
When the billionaire Issa brothers bought Asda, their EG Group was told to sell 27 petrol stations in places its expanded footprint may have given it the power to dictate petrol prices locally.
EG Group – also owned by the Issas – has 340 petrol stations in the UK. In more extreme cases the CMA can force businesses to sell firms they have bought.
In November the watchdog ordered JD Sports to sell the smaller high street trainer retailer Footasylum over concerns the takeover would be bad for shoppers.
The debt-fuelled takeover of Morrisons has also sparked concerns over the supermarket giant’s finances.
The deal was worth around £10billion in total, including Morrisons’ £3billion of outstanding debt. CD&R put up around £3.4billion but a further £3.6billion was borrowed and has pushed Morrisons’ debt pile to £6.6billion.
With the debt level rising, the private equity group was forced to pledge properties as security to the pension fund in order to win backing from the trustees of the scheme.
Shore Capital retail analyst Clive Black said: ‘CD&R has to sort out Morrisons’ long-term debt and will not be helped by an ongoing CMA investigation into that.’
The debt burden – and the prospect of rising interest rates – may be tricky to manage as a supermarket price war eats into profits at a time when costs are rising.
Black said: ‘The debt undoubtedly introduces more financial risk into Morrisons, but CD&R will have done its homework into what Morrisons needs to be competitive.’
Morrisons is the UK’s fourth biggest grocer behind Tesco, Sainsbury’s and Asda. It was the only one of the Big Four to lose market share over Christmas, according to data from Kantar.
CD&R, which manages investments worth £22billion in around 90 businesses, has also drawn criticism for what are seen as vague commitments to Morrisons’ 500 store estate. Morrisons declined to comment.