Morrisons haemorrhages cash after private equity takeover: Embattled grocer racks up £1.5billion in losses in first year after debt-fueled deal
Morrisons has been haemorrhaging money since falling into the hands of private equity two years ago, new documents reveal.
The beleaguered Bradford-based grocer racked up £1.5billion in losses during the year after being taken over by US firm Clayton, Dubilier and Rice (CD&R).
A filing with Companies House from its parent company laid bare the pressure Morrisons faced following the takeover, raising fears of influence by foreign financiers over major UK companies.
Crisis: Morrisons racked up £1.5billion in losses during the year after being taken over by US firm Clayton, Dubilier and Rice
Morrisons was bought in October 2021 for £7billion by the private equity group in a debt-fueled deal led by former Tesco boss Sir Terry Leahy, an adviser to CD&R.
The takeover was met with fierce opposition from deputies and senior city officials who warned it could be ruinous for the business and drive up prices for customers.
The deal saw £6.1billion of debt pile up on the grocer’s balance sheet, leaving it with huge interest payments and high exposure to increases in borrowing rates.
The year before it was taken over, Morrisons was Britain’s fourth largest supermarket and posted an annual profit of £201million.
But in the year that ended last October, Morrisons sunk in the dramatic loss of £1.5billion. Shore Capital retail analyst Clive Black said it was a “very unfortunate outcome for CD&R”.
The loss was partly due to a £400m interest payment to pay off its debt, which Black says is “enormous”.
The grocer’s debt has also made it less able to control its costs as the industry grapples with runaway inflation. After the deal, Morrisons raised prices faster than rivals, leading to an exodus of buyers.
And in an embarrassing blow for Leahy, now company chairman, he lost his coveted spot in the so-called ‘Big Four’ of British grocers in September when he was overtaken by German discounter Aldi. Budget rival Lidl has also laid out plans to overtake the company.
Black said some of Morrisons’ problems were caused by lengthy competition investigations into the CD&R takeover and its £190m bailout deal for collapsed convenience store chain McColl’s.
But he added: ‘In seeking to protect profits, CD&R allowed Morrisons’ prices to rise to the point that buyers began to take notice, and it lost more market share than is desirable.’
Speaking to the Daily Mail last year, former Morrisons manager Paul Manduca said founder Sir Ken Morrison would “turn in his grave”.
Although Morrison lost shoppers, saw his sales plummet and tip into a loss, supermarket bosses were still receiving windfall salaries.
Chief executive David Potts was among a group of “senior executives” who split a £25million pot. Morrisons declined to specify how many received the salary.
Bankers, lawyers and spin-docs have all also benefited from the deal, with Morrisons admitting advisers were paid £95m for working on the deal.
Black said there were “signs of improvement” in Morrisons’ performance, with an increased focus on pricing in recent months and the potential benefits of the McColl combination.
“But they clearly have a lot to do before it’s a profitable business,” he said.