European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

CD&R Leading the Bid War for Morrisons with a Recommended Offer

FTSE100 Index Rebalance Preview: Darktrace Should Replace Morrisons; Wizz Could Replace Royal Mail

Fortress/Morrisons: 272p Pre-Emptive Strike

FTSE100 Index Rebalance: Looking Beyond The Announced Changes

Event-Driven

<p>At the awaited auction for <a href="https://www.smartkarma.com/entities/wm-morrison-supermarkets-plc" target="_blank" data-smartkarma-citation="entities:22052:1" rel="noopener">Wm Morrison Supermarkets (MRW LN)</a>, CD&amp;R increased its bid to <strong>287p</strong> against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (<a href="https://www.smartkarma.com/insights/fortress-morrisons-272p-pre-emptive-strike" target="_blank" data-smartkarma-citation="insights:55791" rel="noopener">Fortress/Morrisons: 272p Pre-Emptive Strike</a>) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for <a href="https://www.smartkarma.com/entities/vectura-group-plc" target="_blank" data-smartkarma-citation="entities:22201:1" rel="noopener">Vectura (VEC LN)</a>, but preferred to make its rival pay a bit extra.</p>
<p>The consideration represents an <strong>implied equity value</strong> of <strong>£7,032 mn</strong> and an implied EV of £10,113 mn. This also represents <strong>9.1x EV/Fwd EBITDA</strong> and <strong>20.4 Fwd P/E</strong>.</p>
<p>The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.</p>
<p>The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.</p>
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<p>According to my calculations, the winning bid should achieve an <strong>11.8% IRR by year 8</strong>. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). </p>
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<p><strong>Gross spread</strong> is <strong>0.5%</strong>. The deal will complete. Time to surrender the shares.</p>

At the awaited auction for Wm Morrison Supermarkets (MRW LN), CD&amp;R increased its bid to 287p against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (Fortress/Morrisons: 272p Pre-Emptive Strike) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for Vectura (VEC LN), but preferred to make its rival pay a bit extra.
The consideration represents an implied equity value of £7,032 mn and an implied EV of £10,113 mn. This also represents 9.1x EV/Fwd EBITDA and 20.4 Fwd P/E.
The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.
The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.






According to my calculations, the winning bid should achieve an 11.8% IRR by year 8. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). 






Gross spread is 0.5%. The deal will complete. Time to surrender the shares.

Wm Morrison Supermarkets

CD&R/Morrisons: Final Offer and Spread