FTSE closes higher as Morrisons becomes takeover target

·Business Reporter, Yahoo Finance UK
Days before the Chancellor Rishi Sunak delivers his Budget, buses queue at red lights with a wide view of the Bank of England (left) and Royal Exchange (right) in the City of London, the capital's financial district, on 1st March 2021, in London, England. (Photo by Richard Baker / In Pictures via Getty Images)
London’s benchmark index is currently 0.6% lower, below the key 7,000 points level, after its worst day in a month on Friday. Photo: Richard Baker via Getty Images

The FTSE 100 (^FTSE) closed higher on Monday as supermarket chain Morrisons (MRW.L) turned down a £5.5bn ($7.6bn) bid from US buyout firm Clayton Dubilier and Rice (CD&R).

London’s benchmark index closed 0.6% higher on the day, edging back above the key 7,000 points level after a slump earlier in the session and its worst day in a month on Friday. The French CAC (^FCHI) was 1% higher and the German DAX (^GDAXI) advanced 0.5%.

It came as Morrisons shares rocketed more than 30% to around 235p, up from 178.45p on Friday night, on the back of the takeover offer, giving the entire sector a boost. This was slightly above the 230p per share conditional cash offer made by CD&R.

Rival chain Tesco (TSCO.L) was up 1.6%, and Sainsbury’s (SBRY.L) climbed 4.1% on the back of the news.

Morrisons shares surged as much as 30%. Chart: Yahoo Finance
Morrisons shares surged as much as 30%. Chart: Yahoo Finance

Morrisons, which has been battling with a falling market share, now down at 10%, from 10.6% five years ago, said the surprise bid from CD&R significantly undervalued the business.

However, analysts believe that the move will see other potential buyers eyeing up a takeover, with offers expected to come from American private equity firms Lone Star and Apollo Global Management as well as Amazon (AMZN), which has a long-running grocery deal with Morrisons, the Telegraph suggested.

Nick Bubb, an independent retail analyst, said: “I suspect a deal can be agreed at 250p-260p and after that the focus will increase on a potential breakup of Sainsbury and even Tesco, so it should be a lively day on the stock market.”

“I certainly wouldn’t want to be a hedge fund short of any of the big three,” he said.

The UK market has increasingly been a source of interest this year from overseas investors on valuation grounds.

Watch: Morrisons shares surge on takeover bid

Read more: UK government to dilute rules on overseas takeovers

Across the pond, the S&P 500 (^GSPC) rose 1.21% at the time of the European close, and the tech-heavy Nasdaq (^IXIC) rose 0.7%. The Dow Jones (^DJI) gained 1.6%.

On Friday, the Dow Jones suffered its worst week since last October amid fears that rising inflation could force central banks to slow stimulus measures.

The slide was partly fuelled by St Louis Fed president James Bullard, who said America’s central bank had turned “more hawkish” to contain inflationary pressures.

Watch: Dow drops over 500 points on Bullard comments

“Federal Reserve official James Bullard became the proverbial bull in a China shop on Friday when he said that the Fed might need to raise rates in late 2022 instead of 2023. That sparked a run for the exit door for equity markets and commodities while the US dollar powered higher,” Jeffrey Halley, senior market analyst, Asia Pacific, OANDA, said.

“The US yield curve continued to flatten as long-dated bond yields slumped, notably in the 20-year tenor. The major casualty has been the global reflation/cyclical recovery trade.”

The US dollar had one of its best weeks since April 2020 last week, rising to a two-month high against a basket of currencies as a consequence of last week’s Fed shift of position.

Commodities have also been pressured by the strong dollar as they are denominated in the US currency and become more expensive to buy in other currencies when the greenback rises.

Asian markets mostly skidded on Monday, catching up with Friday’s losses in Europe and the US.

In Japan, the Nikkei (^N225) nosedived 3.3% while the Hang Seng (^HSI) fell 1.2% and the Shanghai Composite (000001.SS) edged just 0.1% higher.

“As an export-driven economy, Japan is particularly sensitive to what is happening beyond its waters, while domestically a sluggish vaccine rollout and uncertainty over Tokyo’s Olympics aren’t doing much to help matters," AJ Bell investment director Russ Mould said.

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