THE pandemic has proved to be a tumultuous period for the UK’s “big four” grocers, Tesco, J Sainsbury, Asda and Wm Morrison.

While huge parts of the economy came to a shuddering halt when the country moved into its first national lockdown in March 2020, supermarkets remained open, pulling out the stops to ensure food, drink and other essentials could continue to reach worried consumers.

Fifteen months on, the UK economy has reopened to a large extent, but there is no sign of the upheaval easing for the grocery sector.

Just days after the competition watchdog gave the green light to the takeover of Asda by forecourt operators the Issa brothers in a £6.8 billion, private equity-backed deal, fellow big four grocer Wm Morrison could be next to change hands.

Morrisons, which began life as a Bradford market stall in 1899, has rejected a proposed cash offer from private equity outfit Clayton, Dubilier & Rice (CD&R).

The UK’s fourth-biggest grocer, which has nearly 500 stores, declared that the 230p per share offer – valuing Morrisons at £5.5 billion – “significantly undervalued” the company.

However, it would seem unlikely to be the end of the matter. Judging by the reaction of Morrisons’ share price, which leapt more than 30 per cent yesterday, it seems that stock market players are expecting a deal to eventually be done.

Until the CD&R approach, which emerged over the weekend, the Morrisons' share price had languished for the best part of three years.

Although it is broadly held that the pandemic has been positive for sales, it has also been costly for grocers. Huge investment has been required to be made in Covid measures in stores, and in keeping supply chains open. Supermarkets have had to contend with the rising cost of sick leave. Now, with parts of the consumer-facing economy open again, including hospitality, tourism and cinemas, there are other ways in which people can spend their disposable incomes again.

Covid also struck amid ultra-competitive times in the grocery market. Margins have been under pressure at the big four for some time as they have sought to combat the aggressive tactics of discounters such as Aldi and Lidl.

The ultimately doomed attempt at a merger between Sainsbury’s and Asda, which was blocked by the regulator in 2019, was at least in part a defensive strategy against the threat of the discounters.

Then there’s been the costs involved in setting up online delivery operations. Morrisons, in particular, has been criticised for being late to the party in this regard, though now appears to be making progress.

Why, then, has Morrisons, and Asda before it, become attractive to private equity bidders?

Even after its surge yesterday, the Morrisons' share price closed below the 266.8p it reached in August 2018. At one stage, as the second wave of coronavirus loomed in late October, it fell to as low as 162.9p, and was trading at 178.45p at the close of session on Friday night.

So, value is one part of the appeal Morrisons holds for CD&R. But it is not the only thing.

Like Asda, Morrisons owns the freeholds of a large proportion of the properties that its stores operate from, a factor that may make it attractive to bidders.

Morrisons is also vertically integrated, with its website noting that it produces most of the food it sells from 18 manufacturing sites and 493 stores.

Under UK takeover rules, CD&R has until 5pm on July 17 to announce a firm intention to make an offer. But even if it rules itself out of the running, which according to reports would appear to be unlikely, there is speculation that it could flush other suitors out in any case.

These could include Amazon, which has been building its presence in the online food market.

“That isn’t surprising given that Morrisons is already a prince in the company’s e-commerce empire, selling ranges via Prime and via the Amazon Fresh bricks and mortar store in West London,” said Susannah Streeter, an investment analyst at Hargreaves Lansdown, reacting to the speculation.

“A takeover would give Amazon an oven-ready brand in the UK supermarket space to help it expand in the grocery sector.”

However, while Amazon has been tipped to make a play for the grocer in the past, it was noted in one report yesterday that the tech giant is not known for its willingness to enter bidding wars.

Should the board of Morrisons ultimately recommend to shareholders an enhanced bid from a private equity player, the retailer could expect some scrutiny over the potential implications for its 120,000 employees.

The Labour Party has already expressed concern over the possibility of another private equity takeover in the UK, warning that this approach can lead to dividends being taken by new owners while costs are cut and debts heaped on to balance sheets.

“It’s likely reducing staff overheads would be a key part of the cost-reduction strategy,” acknowledged Ms Streeter.

There could be implications for consumers, too.

Would a private equity player, with an ultimate goal of selling a business for more than it bought it for, really be the kind of owner to invest in price discounts to ensure Morrisons is able to hold its own in an intensely competitive market?

These are just some of the big questions the Morrisons board and the retailer’s investors are likely to be considering should further bids be flushed out for the grocer in the days and weeks ahead.

“The issue now is how the big shareholders respond and whether they – and the Morrisons board – feel they can squeeze out a higher bid or feel sufficiently confident in Morrisons’ strategy and long-term competitive position to spurn the offer altogether,” noted Russ Mould, investment director at AJ Bell.

All things considered it is hard to escape the conclusion that the battle for Morrisons has only just begun.