Hedge funds wary despite market confidence in Morrisons

Hedge funds have sat out the anticipated Morrisons bidding war because they believe share prices have already peaked.

The supermarket’s stock surged when markets opened on Monday, after a 254p-a-share offer from private equity firm Fortress overtook a lower bid from rivals Clayton, Dubilier and Rice.

Shares leapt to 268p on Wednesday, fuelled by speculation that further offers will push the price higher.

Although the market is “heavily pricing” the next Morrisons bid, a hedge fund source told The Telegraph this was down to the confidence of longer-term shareholders.

READ MOREMinister to meet Morrisons management over buyout

“If you are going to get involved, then you need to think that this is going to get out of control,” another insider said.

When they anticipate a bidding war, hedge funds tend to bet on increased offers through complex derivative trades.

However, stock market filings show that no trades above £65 million have been made, even though Morrisons’ equity value is more than £6 billion. 

At least one Morrisons shareholder has urged executives to hold out for higher offers.

J O Hambro, which holds a three per cent stake, said last month that 270p-a-share bids “merit engagement and consideration” from the board.

Another investor, Legal and General, has warned that the Big 4 grocer could be taken over for the “wrong reasons”.

It also singled Clayton, Dubilier and Rice for criticism, claiming the firm would not bring any “genuine value” to Morrisons.

FinanceSupermarkets

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