Morrisons offers farmers reassurance over proposed takeover

Morrisons has sought to reassure farmers that the proposed takeover of the business by US-based private equity firm Fortress should not lead to changes in the way it works with its suppliers.

Farmers are worried about the implications of the deal, given the supermarket is one of British farming’s largest direct customers, buying animals and whole crops directly from more than 2,700 British farmers.

In a statement released earlier this month, as news of the offer first emerged, Morrisons stressed that Fortress had a full understanding and appreciation of the “fundamental character” of the business.

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Fortress fully supported the relationships that Morrisons has fostered with its small suppliers and farmers and did not anticipate making “any material changes to existing payment practices with them”, it said.

It has now emerged that Morrisons chief executive David Potts has followed this up with a letter written directly to the supermarket’s farmer suppliers, in which he says the pledges made by Fortress “carry genuine weight”.

According to The Guardian, which says it has seen the letter, it says: “Throughout our discussions with Fortress, we considered very carefully whether Fortress would be a suitable and appropriate owner of Morrisons and whether their plans for the business would protect and develop the fundamental character of Morrisons for the benefit of all stakeholders.

“And that, of course, includes the farmers we work with and British agriculture more widely.”

Reassurances

Duncan Swift, agribusiness restructuring partner for Azets, said a private equity owner would have the ability and desire to drive change in the business to unlock value, perhaps more rapidly than a public listed company on the stock market might be able to, which is why farmers were concerned.

The board of Morrisons was clearly conscious of the need to offer assurances with regard to the impact of any change in ownership in three key areas – its financial strength (covenant), its culture and its commitment to stakeholders.

The letter was an attempt to address farmers’ concerns about the commitment the retailer might have to them moving forward.

“I think they [farmers] are right to be conscious of change and alert to that which may affect them, and the Morrisons’ board is clearly trying to reassure them that it is not going to have a substantive effect upon them,” he said.

“David Potts’ letter is very much saying they are committed to their existing supply base and the style in which they source food products and the pricing arrangements for them.”

Mr Swift said his view was that supply trading relationships would not face substantive changes for some time, as it was unlikely to be a priority.

Any new owner would most likely focus on unlocking value in the business’s property portfolio, he said, making its property assets work harder for it. “They have far bigger fish to fry in the property area,” he said.

However, the deal was still one on which suppliers should keep a close eye.

While the board has recommended that the offer from Fortress should be accepted, it was down to shareholders to give final approval to the deal.

It was not impossible that another buyer with deeper pockets might come along and table a higher price, he warned.

“What we now have at play is a very public auction, but with a board that is recognising the cultural and heritage features of the company that make it so different to other retailers and clearly expressing a desire to maintain those.”