Could Amazon make a takeover bid for Morrisons?

Amazon could yet make a takeover bid for Morrisons according to analysts as a potential bidding war for the grocer heats up.

Morrisons share price skyrocketed 11 per cent yesterday after a third private equity firm, Apollo, announced it was in the early stages of evaluating a possible offer.

The UK’s fourth largest grocer already rejected a £6 billion takeover bid from Clayton, Dubilier & Rice before accepting a £6.3 billion bid from private equity firm Fortress.

Despite accepting the takeover offer, the deal still needs to be approved by shareholders who may well shun the firm if a better offer is made.

Many have pointed to Amazon, which significantly expanded its partnership with Morrisons last August and now sells its entire range on its platform.

READ MORE: Morrisons agrees to £6.3bn takeover bid

“Amazon’s UK supply chain has become inexorably linked to Morrisons during the pandemic,” ParcelHero’s head of consumer research David Jinks said.

“Not only does it source Amazon Fresh online orders, Morrisons also stocks Amazon’s three, pioneering, till-free Amazon Fresh stores in London. Morrisons’ Amazon deliveries are now available in around 50 towns and cities across the UK. The tie-up has become so successful that it now accounts for over 10 per cent of all sales at participating stores.”

Jinks believes a third-party takeover could be bad news for Amazon, which is perfectly positions to utilise Morrisons store estate and established supply chain to help it break into the UK grocery market, an ambition it has been investing in significantly this year.

“Fortress’ offer of 254p per share now looks a little low, with the stock price reaching a high of 268p yesterday,” he added.

“Who has the money to top this offer? Amazon is known to have a bulging war chest. Incomer Andy Jassy has worked hand-in-glove with his former boss, Jeff Bezos, and is known to fully support Amazon’s philosophy that you must speculate to accumulate. Some analysts are saying bidding could go as high as 280p per share, a price well within Amazon’s reach.”

Interactive investor Richard Hunter believes it is “perfectly feasible” that other bids could still be made and that Amazon could yet “emerge from left field as a surprise last minute entrant”.

“UK supermarkets in general are cash generating engines, whose share price gains have been capped by the costs of the pandemic, despite increased sales, making them more attractive on valuation metrics,” he added.

“In addition, Morrisons largely owns its freehold estate, adding another sweetener to any potential purchase.”

Edge by Ascential’s retail analyst Chris Elliott meanwhile believes Morrisons could be too small for Amazon to consider taking over, suggesting it could instead favour Sainbsury’s.

“Amazon and Morrisons have had a partnership since 2016 and there has always been speculation that Amazon would bid for the supermarket to significantly expand its grocery offering.

“However, more than five years later its has yet to submit an offer and with a bidding war on the horizon, it seems unlikely it will choose this moment to strike.

“However, if Amazon is looking to enter the market its option are running short, with Asda sold last year and Tesco’s huge valuation. It may then feel the pressure to bid but given its acquisition of Whole Foods in the US, it may be looking for a more premium retailer and while it could be tricky, Sainsbury’s is arguably now its best option if it wants to enter the market via a takeover.”

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