Retailer's founding family, who together own about 10% of Morrisons' stock, were reported to be interested in backing a private equity buyout
The pressure on Morrisons' chief executive Dalton Philips and chairman Sir Ian Gibson intensified on Wednesday amid rumours that the Bradford-based supermarket could be subject to a bid.
The retailer's founding family, who together own about 10% of Morrisons' stock, were reported to be interested in backing a private equity buy-out led by funds such as CVC or Carlyle Partners as sales at the grocer have fallen.
Morrisons was by far the worst performer among the UK's top supermarkets according to figures released by analyst at Kantar Worldpanel earlier this week. Sales sank 2.5% in the 12 weeks to 2 February and analysts said this performance had worsened to a decline of 4% in recent weeks. The figures suggest that the supermarket continues to suffer after a disastrous Christmas which forced the company to issue a profits warning in January.
Industry insiders said that a retail veteran had been out in the market seeking support for a bid for Morrisons and that private equity firm CVC had run the numbers on the supermarket but there was widespread sceptism that the family would want to be involved in any bid.
Sir Ken Morrison, the 82-year old who built his father's grocery store into a national chain over 40 years, told the Guardian that he knew nothing about a potential buyout and added: "At my age I'm not thinking of returning."
Referring to the farming business he has built up since stepping down as Morrisons chairman in 2008, Sir Ken added: "I'm trying to make a living out of selling beef now."
Sir Ken, who cut his personal stake in his former business to less than 1% several years ago, declined to comment on Morrisons' recent dismal performance except to say "it's all there to see in the Christmas trading statement". But sources close to the family said that there was dissatisfaction at the poor performance and the strategy adopted by Philips.
Trusts associated with two of Sir Ken's children, William Morrison and Andrea Shelley, increased their stakes in the business slightly to just over 4% each in November last year. But Sir Ken's niece Susan and her husband Nigel Pritchard, who own a stake worth about 3% of Morrisons, are said to be in favour of diversifying family investments beyond Morrisons and are seen as likely to want to sell some shares.
One industry insider said: "I wouldn't be surprised if the family was interested in selling their stake. Maybe someone has tried to approach the family about trying to do a deal and I'm sure Sir Ken disagrees with what the management is doing. But he doesn't like debt and I can't see him heading to the offices of CVC."
Sir Ken always maintained that Morrisons should keep hold of the freeholds on its properties and fought to limit debt - even during the company's buy-out of rival Safeway.
Shares in Morrisons ended the day up just a penny to 238p after rising as high as 250p, as investors bet that a serious private-equity backed bid for Morrisons was unlikely given the potential costs of financing a deal and the poor performance of the business.
Meanwhile, Clive Black, an analyst at Shore Capital said: "Given Morrison's trading weakness and relatively low valuation, such headlines and potential initiatives are to be expected to some degree at this time. Indeed, we would expect a number of serious private equity investors to be running the rule over Morrisons."
The bid speculation only ramps up the pressure on Philips and his team to change tactics in the face of poor sales and poor profits.
Meanwhile, activist investor Elliot Associates wants the company to separate off its property assets, estimated to be worth about £10bn - into a separately listed company. Other investors say Morrisons has become too focused on expensive ventures into online and convenience store retailers in a bid to catch up with the likes of Tesco and Sainsbury's and has lost touch with its core customers who are now heading to discount stores.
That view is summed up by analysts at Bernstein who wrote in a recent note: "Morrisons lost sight of who it is and lost its value credentials."
Analyst Bruno Monteyne notes that Morrison has become 5-6% more expensive than Asda, where historically the two chains were closely matched.
Despite rumours that Philips' job may be on the line, sources agreed that Gibson is backing his beleagured chief executive. Given the board's backing for the plan to take Morrisons online and build up a conveneience store chain, Philips is likely to be given more time to see these projects through.
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