Opinion: Amazon bid for Morrisons would be a prime move

It will lose its special character. The brand will be trashed. Staff will be thrown on the scrapheap, and the business will be pillaged of its assets, and loaded up with debt. As a series of private equity firms circle the UK’s fourth largest grocery chain Morrisons, there is already plenty of political opposition to a takeover.

And we may have seen nothing yet. Amazon is quietly waiting in the wings and may well pounce with an offer of its own. If so the political and media backlash would be ferocious. After all, everyone hates the tech giant, right?

However, an Amazon offer for the chain might well be the best option, both for the business and for the British economy.

It would genuinely shake up the British grocery market. It would be relentlessly competitive on price, helping consumers. And it would make this country a laboratory for seamlessly integrating physical and online retailing.

The one thing we know for sure about Amazon, for all its faults, is that it builds the businesses it controls, and makes a success of them.

If ministers could quietly indicate to the giant from Seattle that a bid would be safely waved through the regulators, it may well make an offer – and there would be nothing wrong with that.

Morrisons is, in many ways, an unlikely target for the most hotly contested City takeover battle in years. It has remained resolutely in fourth place in the UK market for years, its share price, before the bid, was no higher than two decades ago and its brand has little loyalty outside of its traditional Yorkshire heartlands.

All of a sudden, however, everyone wants it.

A £5.5bn offer from the private equity firm Clayton, Dubilier & Rice was rejected by the board, which then accepted a £6.3bn (and more if you include debt) offer from a rival consortium led by Fortress. Other buy-out firms are rumoured to be crunching the numbers. And, perhaps most intriguingly of all, Amazon may well be looking at stepping in.

Of course, it remains to be seen if it actually makes a bid. But a deal would certainly make sense.

Amazon already has a tie-up with Morrisons, delivering its groceries to its Prime subscribers, so it knows plenty about the company. It has already shown plenty of determination to get into the grocery industry, both with its own brand of cashierless shops, as well as its acquisition of the Whole Foods chain in the US, and the UK would be the perfect place to fine tune a model that it could then roll out globally.

And perhaps most of all, it would be the perfect statement by its new chief executive Andy Jassy that whilethe founder Jeff Bezos was off exploring space he was intent on driving the business forward. Even £8bn would be loose change to Amazon.

The real problem would be the scale of political, and probably media, opposition. Amazon is Evil Big Tech personified and, rather oddly, Morrisons seems to have transformed itself into a lovable national treasure in the last few weeks (I mean it’s not John Lewis, or even Greggs, we are talking about here).

A Boris Johnson administration increasingly drifting towards crude economic nationalism would be tempted to block an offer from Seattle. And yet, in reality, it could well be the best possible outcome.

First, it would change the face of the British grocery market. Tesco, Sainsbury’s and Waitrose would watch a private equity takeover and shrug. Aldi and Lidl would remain perfectly relaxed about undercutting its prices. Shareholders would pocket the money, and switch it into another FTSE 100 company.

Not much would change.

But an Amazon takeover would electrify the market, introducing a level of competition that would force everyone to raise their game. Next, Amazon would be relentless on price. It has rarely seen a margin it doesn’t want to squeeze nor a supplier it doesn’t want to put pressure on. Lower prices would drive down the cost of food and that would be great for consumers.

Finally, it would make the UK a testing ground for the future of retailing. Morrisons already had an innovative supply chain that gives it control of production from the farm to the shelves. With its vast financial resources and its team of slightly nerdy logistical obsessives, Amazon could take that to a whole new level.

Integrating production and distribution seamlessly into both online and physical retailing will be a huge growth story over the next decade. If British suppliers, distributors and indeed grocery rivals are learning from that, and upping their own game, the UK will spawn many more world-beating companies – and we could surely use a few more of those.

There is nothing wrong with a private equity takeover of Morrisons. Cash is, after all, cash. And many of the buy-out firms are not the assets strippers they are often portrayed as, at least not anymore. Even so, their ambitions will be limited. They will settle for it remaining in comfortable fourth place, generating cash and paying handsome dividends.

By contrast, Amazon builds its units into global world-beaters. It might seem slightly implausible right now, but a chain that started in Bradford in 1899 could be transformed into a global powerhouse under its ownership.

A bid for the chain from the tech giant would be genuinely exciting, both for the business and for the British economy. Behind the scenes, ministers should be quietly reassuring the company a bid won’t be blocked and the inevitable political storm ignored. And then step back and hope that it steps into the fray with an offer.

Right now, Amazon would be the best owner of Morrisons – of that there can be no question.

About the Author: Matthew Lynn is a financial columnist and author. He writes for WSJ Marketwatch, The Spectator and Money Week as well as The Telegraph, and has worked as a columnist for The Sunday Times and Bloomberg.

First published in the Telegraph