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FTSE 100 volatile in rocky world markets as Morrisons bid triggers takeover fever

·3-min read
Morrisons CEO David Potts (PA Media)
Morrisons CEO David Potts (PA Media)

The FTSE 100 Index fell sharply today before staging a rapid recovery as a takeover bid for Morrisons sparked hopes of a new rash of private equity takeovers of UK plcs.

Wall Street’s sharp fall on Friday night initially spilled over into Asia and London, getting the week off to a negative start, with the UK index falling below the 7000 mark.

But it recovered from a near-60 point early fall to be up 13 points at 7030 amid hopes of a recovery on Wall Street this afternoon.

Supermarket giant Morrisons at the weekend rejected a bid from Clayton Dubilier & Rice priced at 230p - a 29% premium to the grocer’s share price on Friday night.

The board declared the offer - fronted by former Tesco chief Sir Terry Leahy - “significantly undervalued” the business.

Its shares raced ahead today to 235p as various analysts proposed what they considered would be a knockout price, with some saying shareholders would want the board to at least engage in talks at 245p with 280p being likely to win support.

Morrisons has been wargaming such an approach with its advisers at Rothschild for months, The Times reported, as its moribund share price made an approach all-but inevitable.

David Potts, the chief executive, has turned the business around since arriving in 2015 but the markets have failed to appreciate “bricks and mortar” grocers, preferring to back online players like Ocado and Amazon in the hunt for share price growth.

It raises the prospect of other takeover approaches from wealthy private equity funds, which have built up warchests of billions of pounds from pension funds and other investors hunting for returns in the current low-interest rate environment.

Fresh bids could come in for Morrisons and rivals Tesco and Sainsbury, some speculated.

There have already been some 123 public-to-private takeovers since the start of the year and shares in grocers are likely to gain after the Morrisons tilt.

Elsewhere, though, financial markets remain jittery at such high levels for stock markets across the world.

Markets have been reacting over recent days to the shift in the US Federal Reserve’s tweak last week bringing forwards the likely timing of its tightening of super-low interest rates.

St Louis Fed president James Bullard said he was leaning towards recommending a rate rise in 2022, which served to undermine the Fed’s consistent narrative of lower-for-longer.

The Fed change was only reflecting what many investors have been saying for months; that the US economy was heating up too fast for the current Fed policy stance to be sustainable.

Until now, the central bank has held the line on its argument that it has to keep things easy until unemployment fall significantly. There are still millions more Americans unemployed now than there were before the pandemic struck.

But the picture is muddied because there are also millions more unfilled job vacancies, which both confuses the labour market picture and suggests wage inflation could be on the way as employers increase pay rates to attract workers on board.

The FTSE’s biggest risers were Ocado and Sainsbury, up 4% on the back of the Morrisons bid. Tesco was up 2%.

Fallers were British Airways owner IAG, down 2%, Admiral, the insurance firm, down 1% and HSBC, also off 1%.

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