By Scott Wright

SHARES in Wm Morrison surged higher last night as the City signalled its expectation that the takeover battle for the grocer is not over yet.

Morrisons’ shares closed up 4.2 per cent at 291p as investors responded to a £7 billion offer from Clayton, Dubilier & Rice, which was accepted by the board of the Yorkshire-based supermarket group.

The counter-offer from the New York private equity house, which effectively kicked off the auction for Morrisons with a failed £5.5bn approach in June, came after the grocer had accepted a £6.7bn bid from a consortium led by US investment group Fortress earlier this month.

The latest offer from CD&R, which counts former Tesco chief Sir Terry Leah as a senior advisor, values Morrisons at 285p per share – a premium of 60% to its closing price immediately prior to CD&R’s first approach. And with Morrisons' shares surging higher, to 291.7p, analysts said there was scope for a higher bid to emerge.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “This might not be the end of the story. Rival bidder Fortress has urged investors to hold fire on accepting the deal and are expected to make a further statement in due course. With the shares currently trading above the new and improved offer price, the market clearly thinks a better offer is a distinct possibility.”

The battle being waged by private equity groups for Morrisons has sparked speculation over the future direction of the group.

Analysts have suggested that Morrisons’ property assets – it owns the freeholds for the bulk of its near-500 stores – are a key attraction, amid talk that the successful bidder will seek to raise cash by selling and leasing back properties.

Shareholders will vote on the latest CD&R offer at some stage during the week starting October 4, unless a rival bid emerges.

Oppidum Bidco, the name of the Fortress-led group, said it is now “considering its options”.