Morrisons hit by £1.5bn loss after private equity buyout

Morrisons has been bleeding with money since falling into the hands of private equity two years ago, new documents show.

The beleaguered Bradford grocer posted £1.5bn in losses the year after being bought by US company Clayton, Dubilier and Rice (CD&R).

A Companies House filing filed by the parent company exposed the pressure Morrisons has come under in the aftermath of the buyout, sparking fears about the influence of foreign financiers on key UK companies.

Morrisons was snapped up by the private equity group for £7bn in October 2021 in a debt-driven deal led by former Tesco boss Sir Terry Leahy, an adviser to CD&R.

The takeover was met with fierce opposition from MPs and senior city figures who warned it could be disastrous for the company and lead to higher prices for customers.

The deal pushed £6.1bn of debt onto the grocer’s balance sheet, leaving it with massive interest payments and high exposure to loan rate hikes.

The year before it was acquired, Morrisons was Britain’s fourth-largest supermarket, reporting annual profits of £201 million.

But in the year to last October, Morrisons slumped to the dramatic loss of £1.5 billion. Shore Capital retail analyst Clive Black said it was a “very unfortunate outcome for CD&R.”

The loss was due in part to a £400 million interest payment to pay off the mountain of debt, which Black says is “massive”.

The grocer’s debts have also reduced his ability to control costs as the industry grapples with rising inflation. After the deal, Morrisons increased its prices faster than its rivals, leading to an exodus of customers.

And in an embarrassing blow to Leahy, now chairman of the company, it lost its coveted spot in the so-called ‘Big Four’ of British grocers in September when it was overtaken by German discounter Aldi. Budget rival Lidl also has plans to overtake the company.

Black said some of Morrisons’ troubles were caused by protracted competition investigations into CD&R’s takeover and £190m bailout deal for collapsed convenience store chain McColl’s.

But he added: “To protect profits, CD&R allowed Morrisons’ prices to rise to the point where shoppers started to take notice, and it has lost more market share than it should have.”

Speaking to the Daily Mail last year, former Morrisons chief executive Paul Manduca said founder Sir Ken Morrison was ‘turning in his grave’.

Despite Morrisons losing customers, seeing sales drop and running at a loss, the supermarket bosses still received hefty pay packages.

Chief executive David Potts was among a group of ‘senior managers’ who shared a pot of £25 million among them. Morrisons declined to clarify how much the wages received.

Bankers, lawyers and spin doctors have also all made money from the deal, with Morrisons admitting advisors received £95 million for working on the transaction.

Black said there are “signs of improvement” in Morrisons’ performance, with a greater focus on pricing in recent months and potential benefits from the partnership with McColl.

“But they clearly have a lot to do before it’s a profitable business,” he said.