The management of Wm Morrison Supermarkets, facing pressure from investors on wages as executives of a state-owned company, could potentially land a nine-figure windfall if the UK supermarket operator agrees to go private.
The grocer has rejected a £ 5.5bn (€ 6.4bn) proposal from buyout firm Clayton Dubilier & Rice, setting the stage for a heated takeover battle. A successful bid could see Morrison’s management share an estimated payout equal to around 5% of the company’s market value based on typical large buyout structures, according to people familiar with industry standards.
In Morrison’s case, that could amount to around £ 290million for company executives, including chief executive Dave Potts, based on his current market value of £ 5.8bn. The group’s shares jumped 35% yesterday.
The precise details of CD & R’s compensation plans could not be learned immediately, and they may deviate from standard practices.
Most of Morrison’s management team are former Tesco employees and worked with former CEO Terry Leahy when he was aggressively growing in the United States and Asia. Mr. Leahy is now a senior advisor to CD&R and closely involved in the Morrison offer.
Mr Potts has spent most of his working life at Tesco, leaving after failing to secure the top job when Mr Leahy resigned. Other alumni of Britain’s largest supermarket chain currently in Morrison include Chairman Andrew Higginson, COO Trevor Strain and CFO Michael Gleeson.
Much of any compensation received from a private equity buyer would likely take the form of stock awards, meaning that the gains would not be realized until an exit several years later. Representatives for CD&R and Morrison declined to comment.
For Morrison’s management, any private equity salary would follow one of the biggest investor revolts over executive pay at a UK listed company. More than 70% of Morrison shareholders voted against the grocer’s latest director compensation report earlier this month.
The dispute arose after Morrison’s compensation committee adjusted bonus criteria even though profits halved in a year as the grocer absorbed £ 290m in Covid-related costs.
The non-binding vote means executives will still receive their rewards, which include a £ 1.7million bonus for Potts, and Morrison has said he will “reconnect” with shareholders to explain his decision. This isn’t the first time Morrison’s investors have voted in large numbers against executive compensation.
Private equity firms have spent $ 46 billion (€ 39 billion) on deals involving British targets this year, according to Bloomberg data. It puts them on track for one of their busiest years on record as they deploy their record amounts of unspent capital to capitalize on valuations of companies battered by the pandemic.