Morrisons shares have surged again as investors bet the £7bn price tag on the company could go higher still amid a private equity bidding war for control. They closed up 4% at 291p, 6p more than the 285p a share offer lodged on Thursday by US group Clayton, Dubilier & Rice (CD&R). The £7bn offer is £300m more than the £6.7bn on the table from rival suitor’s Fortress but the share price move suggests the winner may have to dig even deeper as that 6p equates to more than £150m. The optimism came after the Fortress-led group said it was “considering its options” and urged Morrisons shareholders to “take no action”. Fortress, which is owned by the Japanese investment giant SoftBank, has teamed up with the Canada Pension Plan Investment Board and the Koch family to buy the Bradford-based supermarket. This month Fortress tried to scupper CD&R by upping its offer to 270p a share plus a further 2p a share special dividend, an increase of £400m on its initial £6.3bn bid. Analysts said the ball was now in Fortress’s court. If leapfrogging continues, one option would be for the Takeover Panel, which oversees UK mergers and acquisitions, to arrange an auction to bring matters to a head before the shareholder vote proposed in October. This route was to be used to resolve the takeover tussle over UK inhaler firm Vectura between cigarette producer Philip Morris International and US private equity firm Carlyle. In the end, Carlyle pulled out. The CD&R bid is fronted by former Tesco chief executive Sir Terry Leahy, who is one of its senior advisers. He is credited with turning Tesco into one of Britain’s biggest business success stories even if the wheels came off after he left. His 32 years at Tesco, 14 as chief executive, mean there is not much he doesn’t know about supermarket retailing. He launched convenience stores as well as the out-of-town Extras and was one of the first to see the potential of the internet for selling groceries. Both CD&R and Fortress have sought to assuage some of the concerns associated with private equity ownership by making a number of promises, including keeping the head office in Bradford and its existing management team and strategy, while also honouring the company’s recent increase in pay to £10 an hour for shop floor staff. So how will it make the numbers stack up? CD&R, which will face less scrutiny than a stock market-listed business, also said it had no plans to sell off the retailer’s freehold stores. Most supermarkets lease their sites, but Morrisons has for several years resisted calls to use sale and leasebacks to line the pockets of investors. The new owners of Morrisons are still likely to offload some properties as about a 10th of its stores are loss-making and this would be a way to improve performance while paying back debt. They could also look to release cash from other properties it owns, such as its manufacturing sites. One analyst, who declined to be named, said the fact the Morrisons had been undervalued by the stock market helped explain the 60% premium to the undisturbed share price being offered by CD&R. “Private equity has just raised enormous amounts of cash and have to apply it,” they said. “Some of the people who are applying it today may not be around in seven to 10 years’ time.” Private equity firms can borrow money very cheaply at the moment and use the large amounts of cash generated by supermarkets to pay dividends and service debt. “In the main private equity are just saying these business are just too cheap,” said the analyst. “They’re not stupid. Terry Leahy has recognised that the industry has become more stable and is going to become more profitable.” Other ways to help fund the takeover would be to sell Morrisons’ fuel stations, a tactic used following Asda’s recent sale to a private equity consortium. However CD&R owns a stake in Motor Fuel Group so this area is likely to attract scrutiny on competition grounds. When it increased its offer this month Fortress’s desire to win was clear, stating it “remains committed to becoming the new owner of Morrisons”. One close watcher said bidders were racking up a lot of cost – in July the bill for advisers and bankers working with Fortress and the Morrisons board was put at £275m – adding: “This is going to be painful for someone.”