Earlier this month British grocer Morrisons rejected a \u00a35.5bn takeover bid by US Private Equity firm Clayton, Dubilier & Rice. The UK’s fourth-largest supermarket, with 118,000 staff, said the offer \u00absignificantly undervalues\u00bb the firm.<\/p>\n
With the offer being just at the current market cap, could there be a case to support this claim and justify a higher valuation? Let\u2019s dive into some of the basics:<\/p>\n
– Revenue growth is forecasted to remain at low single digits for the next few years
\n– Net income margin is expected to remain around 2%<\/p>\n
Assuming this relative stability in the P&L, a DCF method yields a valuation range nearly 3x the current market cap (and CDR bid), giving credence to the firm’s pushback.<\/p>\n
But looking at market based methods we notice that the trading multiples for Morrisons\u2019 peers would suggest a valuation barely half of its current market capitalization; perhaps hinting why the bid didn\u2019t carry a significant premium.<\/p>\n