The Times - UK (2022-06-13)

36 Monday June 13 2022 | the times

Business

blamed a poorly thought-out leaseback

deal for contributing to the collapse of

Debenhams, the department stores

chain.

Clayton Dubilier & Rice’s move with

Morrisons is likely to cause concern

within both the City and Westminster.

Labour warned last year, with the battle

for Morrisons in full swing, that “we

had been appointed to work on bring-

ing the business to market.

These problems for a serial deal-

marker, renowned for leveraged buy-

outs and fierce cost-cutting, have come

amid rising inflation and interest rates

that in turn have driven turbulence on

stock exchanges worldwide.

Analysts at Deutsche Bank noted

recently that “current markets are un-

helpful for a leveraged buyout of BT, let

alone the consequences for BT’s ability

to continue to deploy full-fibre [broad-

band] at pace under a leveraged balance

sheet structure, a prospect which is

likely a key government concern”.

Sam McHugh, an industry analyst at

Exane, said the fall in Altice USA

shares, new entrants to the telecoms

market in Portugal and the aborted

Teads float had “stymied Altice’s ability

to raise capital”. Exane also cautioned

1

The competition watchdog is to

carry out an “urgent review” of

the fuel industry amid growing

concerns that retailers are not

passing on the 5p cut in duty to

motorists. Kwasi Kwarteng, the

business secretary, has written to

the Competition and Markets

Authority days after the cost of

fuel hit record highs. Page 6

2

Gatwick is suffering a

“meltdown every night”

because of staff shortages in

its air traffic control tower, The

Times has been told. There is

growing frustration among airlines

that Britain’s second biggest airport

does not have the resources to

handle the surge in the number of

flights this summer. Page 7

3

Ministers will set out plans to

cut Britain’s reliance on

imported seasonal crops, as

part of a new strategy to prioritise

food security in the aftermath of

Covid and Russia’s invasion of

Ukraine. The government will

prioritise developing a network of

industrial greenhouses that can

produce crops such as lettuce,

tomatoes and cucumbers for UK

supermarkets all year. Page 8

4

Households will fall into

recession next year, the CBI

warned as it called on the

government to take measures to

stimulate business investment to

prevent a wider economic

downturn. The business lobby’s

latest economic forecast slashes

growth this year and next, with

household spending turning

negative in 2023 as result of

surging inflation squeezing living

standards. Page 12

5

Confidence in the Bank of

England and Andrew Bailey,

its governor, suffered a further

blow as critics condemned a

£200,000 contract awarded to

external consultants to help to

“define the essence of the

organisation”. Page 35

6

Stripped of their Big Macs

and golden arches, 15 former

McDonald’s outlets reopened

in Moscow yesterday offering

citizens a foretaste of life after the

withdrawal of big global

corporations. Page 35

7

Clayton Dubilier & Rice, an

American private equity firm,

looks set to soon begin carving

up Morrisons days after its

£7 billion takeover of the British

supermarket chain was formally

approved.

8

The TJM Partnership, an

investment manager for

customers’ money at Safe

Hands Plans, the collapsed pre-

paid funeral company, was under

investigation by the City regulator

years before its failure. Page 38

9

Genomics England is to move

its headquarters to Canary

Wharf in east London this

year as the financial quarter aims

to become a life sciences hub.

Page 41

10

Oxford Innovation

Advice, which has run the

Manufacturing Growth

Programme since 2016, has

warned the government not to

“throw away” its expertise when

European Union economic

development funding runs out

next March. Page 43

Need to know

The odds appear to

have lengthened on the

French telecoms tycoon

lining up a takeover,

Alex Ralph reports

A six-month lock-up period barring

Patrick Drahi from launching a

takeover bid for BT expires tomorrow

and all eyes within Britain’s biggest

telecoms group — and in Westminster

— are watching to see what happens

next.

Only days after the last lock-up

ended in December, the telecoms

tycoon tightened his control over BT,

raising his voting rights from 12.1 per

cent to 18 per cent.

Six months on, however, it seems the

prospects of BT’s largest shareholder

mounting a bid for the former state

monopoly or even of increasing his

position still further have receded.

Last month Kwasi Kwarteng decided

to call in Drahi’s stakebuilding for a

review, a decision by the business

secretary that has coincided with a

downturn in the fortunes of parts of

Drahi’s global empire.

Forbes, the business magazine

renowned for its rankings of the world’s

super-rich, estimates that Drahi’s

fortune has fallen to $6.3 billion from

$16 billion in 2015.

Those business setbacks have raised

questions in the City over whether the

Swiss-based businessman lacks not

only the political cover but the financial

firepower to engineer greater control of

BT. Since emerging with a 12.1 per cent

position in BT last June, Drahi has

faced a series of problems across his

telecoms empire.

Shares in Altice USA hit fresh lows

last month and are down by two thirds

on their $30 issue price. Drahi had

spun-off the American business from

his other international telecoms assets

with a float on the New York Stock

Exchange in 2017, a move that repre-

sented the biggest initial public offering

of a telecoms group on Wall Street in

about 17 years but that also reflected

investors’ concerns about Altice’s

€51 billion debts.

Altice Europe, which Drahi had

floated in 2014 to fund the takeovers of

SFR in France for €17 billion that year

and of Portugal Telecom in 2015 for

€7.4 billion, was taken private last year,

with debts having hit its share price.

Altice halted exploratory plans to sell

its business in Portugal in January after

private equity buyout interest from

EQT and CVC Capital was pitched

below a €7 billion threshold to nego-

tiate a deal. Altice, advised by Lazard,

has said its Portuguese assets “were not

for sale and are not for sale”.

Last August Altice pulled an Amer-

ican flotation of Teads, an advertising

technology company acquired in 2017

with a value of up to €285 million, citing

unsatisfactory market conditions.

Teads, whose lead underwriters in-

cluded JP Morgan, BT’s joint-house

broker, and Goldman Sachs, which has

been brought in to help to build BT’s

takeover defences, were said to have

been targeting a $5 billion valuation.

A potential $5 billion New York float

of Sotheby’s, the auction house that

Drahi bought in a $3.7 billion deal in

2019, inset above, has gone quiet since

Bloomberg reported in January that

Goldman Sachs and Morgan Stanley

Th

BT and Westminster wait

Knock on the head

Net worth

2014 16 18 20 22

0

2

4

6

8

10

12

14

$16bn

Source: Refinitiv

Altice USA

Share price

2018 19 20 21 22

0

5

10

15

20

25

30

35

$40

$6.3bn

Drahi’s estimated fortune,

down from $16bn in 2015

$4.6bn

Altice USA

valuation

Morrisons’ warehouses lined up for £600m sale

An American private equity firm looks

set to soon begin carving up Morrisons

days after its £7 billion takeover of the

British supermarket chain was formally

approved.

Clayton Dubilier & Rice is under-

stood to be selling several Morrisons’

warehouses and food manufacturing

plants. Would-be suitors have not been

told which buildings will be sold, but

The Sunday Times, which revealed the

potential sale, expects the portfolio to

include two dozen sites worth more

than £600 million.

Agents at BNP Paribas are thought to

have been hired to market the assets. A

spokesman for Morrisons declined to

comment.

Morrisons was started by William

Morrison as a butter and egg stall in

Bradford, Yorkshire, in 1899. It is now

Britain’s fourth largest grocer, employ-

ing 110,000 staff across 500 stores and

19 food processing sites and owns 87 per

cent of its properties. Clayton Dubilier

& Rice was understood to have been

attracted to Morrisons in part because

of the retailer’s freehold ownership of

much of its estate.

The American firm’s winning bid was

approved by the Competition and

Markets Authority at the end of last

week. Last year it promised that it did

not plan to “engage in any material

store sale-and-leaseback transactions”

after its acquisition of Morrisons.

However, industry insiders pointed to

“store” as the key word in that pledge,

which is only good for 12 months under

takeover rules.

Sale-and-leasebacks of a business’s

commercial properties are a common

way for private equity owners to quickly

extract cash, but they can leave retail-

ers saddled with onerous, long-term

rental obligations. City commentators

can’t let Britain’s supermarkets be

scrapped for parts”.

There is speculation in the sector

that Clayton Dubilier & Rice may need

to sell off more of Morrisons’ properties

given the tough trading conditions

that are facing retailers. Consumer

confidence is at record lows as wages

struggle to keep pace with surging

inflation, which has jumped to its high-

est in four decades.

In response, the Bank of England is

widely expected to raise interest rates

again this week, making the cost of

borrowing more expensive for house-

holds and businesses.

In April, Morrisons warned that the

gloomy economic outlook might dent

its profits. The grocer’s sales declined by

9.5 per cent in 12 weeks to May 15 com-

pared with the same period a year

earlier, according to Kantar, the market

researcher. That was the worst per-

formance of any British supermarket.

Tom Howard

Morrisons has struggled to maintain

sales as the cost of living rises sharply