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* Morrisons rejected proposed 5.52 bln pound offer from CD&R
* Said proposal "significantly undervalued" the group
* CD&R has until July 17 to make firm offer
* Shares in Tesco and Sainsbury's rise on hopes sector in
play
(Adds detail, updates shares)
By James Davey
LONDON, June 21 (Reuters) - Shares in Morrisons
surged as much as 33% on Monday on hopes that U.S. private
equity firm Clayton, Dubilier & Rice (CD&R) might raise its
proposed offer for the British supermarket group or flush out
interest from other suitors.
Morrisons, Britain's fourth-largest grocer by sales behind
market leader Tesco, Sainsbury's and Asda, on
Saturday said it had rejected a proposed cash offer from CD&R.
The company said the offer of 230 pence per share, equating
to 5.52 billion pounds ($7.62 billion), "significantly
undervalued" the group and its future prospects.
Morrisons shares were up 56.35 pence at 234.7 pence by 0726
GMT.
Under British takeover rules CD&R has until July 17 to
announce a firm intention to make an offer.
Rivals Tesco and Sainsbury's rose 2.4% and 4.2% respectively
on hopes that the whole sector could be in play, analysts said.
Including net debt of 3.17 billion pounds, CD&R's offer
gives Morrisons an enterprise value of 8.7 billion pounds.
Analysts expect CD&R to assess investor reaction before
deciding on its next move. Silchester is Morrisons' largest
investor with a 15% stake, Refinitiv data shows.
Silchester declined to comment on Monday.
Morrisons has a partnership agreement with Amazon
and there has long been speculation that the online shopping
giant could emerge as a possible bidder.
SECTOR IN FOCUS
CD&R's approach underlines private equity's growing appetite
for UK supermarket assets, attracted by their cash generation
and freehold assets.
Zuber and Mohsin Issa in February joined forces with
private equity firm TDR Capital to purchase a majority stake in
Asda from Walmart in a deal valuing the UK supermarket
group at 6.8 billion pounds.
In April Czech billionaire Daniel Kretinsky raised his stake
in Sainsbury's to almost 10%, fuelling bid speculation.
Industry executives and some sector analysts believe the
stock market has failed to recognise the inherent value in
Britain's listed supermarket groups.
They argue that if equity markets do not value them
appropriately, acquirers will.
"There's a sense of value investors want a very binary story
about knuckling down, keeping capex to a minimum and just
becoming a cash machine," one senior supermarket executive told
Reuters.
Shares in both Morrisons and Tesco closed on Friday below
their pre-pandemic levels.
While sales have soared at all British supermarket groups
during the coronavirus crisis, their profits have fallen because
of the huge extra costs incurred.
($1 = 0.7243 pounds)
(Reporting by James Davey
Additional reporting by Simon Jessop
Editing by David Goodman
)
