Baugur: the iceman cometh...

First Oasis, then Karen Millen and Hamleys. Baugur, the Icelandic retail investment group, has already bought a string of familiar names from the British high street, but a successful tilt for Woolworths would result in its biggest acquisition here yet.

Some City analysts wrote off Woolworths as a lost cause a long time ago. But Malcolm Walker, chief executive of the frozen food specialist Iceland, and Baugur, the Icelandic retail investment group, clearly have not, and this weekend it emerged that they had made an offer to purchase Woolworths' retail division. Woolworths rejected the offer yesterday.

While the outspoken and straight-talking Mr Walker, who was fired from Woolies 37 years ago for moonlighting when setting up Iceland, is a well-known figure in retail, a certain air of mystery still surrounds Baugur.

Founded by Jón Ásgeir Jóhannesson and his father in 1989, the company has been built up through a string of acquisitions and mergers – of which Woolworths could be just the latest.

Mr Jóhannesson remains chairman of the company to this day, despite being convicted in 2005 of charges related to dealings between himself and Baugur. While he has appointed a chief executive, the founder remains the company's driving force and he will have been closely involved in the view that there may still be some value in the ailing Woolworths.

By the turn of 2008, Baugur had gone on a shopping spree that boasted strategic investments or controlling stakes in large swaths of the UK high street. Its tentacles have enveloped retailers including Iceland, the department store House of Fraser, Aurum Holdings' Goldsmiths and Mappin & Webb jewellery chains, the womenswear chain Jane Norman and Mosaic Fashions, the fashion conglomerate of Karen Millen, Oasis, Principles, Coast and Warehouse.

The bulk of its UK investments are in private companies, but Baugur has taken a series of strategic stakes in publicly listed companies which it believes have strong brands and growth potential. However, eyebrows have been raised at some of its investments in struggling listed companies, such as Woolworths and French Connection. The Shore Capital analyst, John Stevenson, says: "These stakes will be underwater." Baugur also has a stake in Debenhams.

However, it is in the private sector that Baugur's operating model has come to the fore. Typically, Baugur does not acquire outright a retailer itself, but is the dominant shareholder in a consortium that purchases a chain.

Baugur's own philosophy on its retail investments is to let the management teams get on with the day-to-day job of running the business. Bosses at the Baugur-owned businesses tend to speak to Gunnar Sigurdsson, Baugur's chief executive, every week, and there are board meetings with Baugur and the various brands' chief executives each quarter.

However, one criticism of Baugur is that its UK retail portfolio has become unwieldy and there is "not a cohesive strategy", said an industry source. But Baugur stresses that the overwhelming majority of its investments are in food, department stores and fashion chains. To name just a few synergies, Baugur highlights the fact that it can sell clothes from chains, such as young trendy chain All Saints or Moss Bros, into House of Fraser, for example, and that its brands can benefit from shared e-commerce technology and services. The Icelandic investment group also cites that Baugur's international presence – given its experience and investment in US retailers – provides it with a huge platform to further export its brands overseas. Fashion chains, such as Karen Millen and Oasis, are already operating in a plethora of different countries, and last week Baugur said it was launching Hamleys into India, after the opening of stores in Amman, capital of Jordan.

However, the performance of some of its investments has left it with egg on its face. Arguably its biggest failure to date was the collapse of the value fashion chain MK One into administration in May. Baugur bought the chain in 2004, but it failed to deliver a compelling offer and never found a formula for competing against the big beast of Primark.

Mr Stevenson says: "Their retail investments have been a mixed bag, [although] there have been successful ones."

Of its successes, Iceland, which has grown profits and sales since Malcolm Walker returned in 2005 to run it, Hamleys and House of Fraser are the ones that are most often mentioned.

Given the scale of its retail investment in the UK, Baugur is likely to be finding life tough in the UK retail sector amid the current grim trading on the high street. However, the com-pany is adamant that it is under no pressure to cash in on any of its investments like a private equity company, whose shareholders expect them to sell businesses within several years of acquisition. In fact, anyone who thinks that Baugur may be about to skulk back into a bunker and lick a few of its wounds may be sorely disappointed, for two reasons. First, Baugur had amassed a £430m war chest in April, when it revealed it had divested its media and technology investments to two new independent companies.

Baugur's finances have always been a constant source of industry speculation. One industry source said: "It is very difficult to see what is going on with the underlying strategy, which is probably what they want." What's not in doubt, however, is that Baugur has the money to mount a credible bid for Woolies should it return to the table.

Second, Baugur believes there are some retailers on the high street, whose valuations have plummeted over the past year, which represent bargains that it would consider making a bid for at the right price.

Baugur declined to comment on Woolworths. But contrary to the current speculation swirling around the approach for Woolworths, it is understood the consortium's main focus is not on putting frozen food into a large number of Woolworths stores. Rather, Baugur and Mr Walker are thought to have identified that Woolworths' retail division – which generated a paltry adjusted pre-tax profit of £3.2m on sales of £1.7bn for the year to 2 February – could deliver greater profits if it is managed more efficiently, with better ranges and availability. It is also thought to believe that Woolworths needs a dedicated chief executive to run its retail business, along the line of discount rival Wilkinson, which is thriving in the current price-led retail downturn. Last week, Woolworths appointed the former Focus DIY boss Steve Johnson as chief executive to run the unwieldy group, with its entertainment wholesale division E.UK and 2 Entertain, its video publishing joint venture with the BBC. There is no indication of whether Baugur will come back with an improved offer.

Overall, Baugur may have stumbled with the performance of a few of its investments recently, but those who are already writing its obituary may have to eat humble pie for many a year to come.

Baugur's march down the high street

Founded as recently as 1989, Baugur has rapidly grown into a powerful retail investment company, with more than 4,000 stores globally and an annual turnover of £5bn.

But it was not until 2003 that Baugur started to acquire – typically through consortiums, where it is the dominant shareholder – or gain controlling interests in a substantial number of UK retailers. In 2003 alone, Baugur Group acquired the toy specialist Hamleys, the young fashion chain Oasis and the snack retailer Julian Graves.

Since then, Baugur has added to its shopping basket the department store House of Fraser, the tea andcoffee specialist Whittard of Chelsea and the jewellery chain Goldsmiths.

However, some of its investments have not performed well. MK One, which Baugur bought for £55m in 2004, fell into administration this year. This summer, Baugur effectively put up for sale the snack retailer Julian Graves after a strategic review, although it remains confident offinding a buyer. Baugur also holds strategic stakes in listed retailers, including the American department store Saks, and the UK store groups Debenhams, French Connection and Woolworths.

Of these, its 12.4 per cent investment in Woolworths and 20.9 per cent in French Connection havetumbled.

Last December, Baugur, which owns a 28.5 per cent stake in the menswear retailer Moss Bros, revealed it was considering launching a takeover bid, which progressed through the diligence phase untilcollapsing in May.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
Clarke Carlisle
footballStoke City vs Chelsea match report
Arts and Entertainment
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
newsIt was due to be auctioned off for charity
Coca-Cola has become one of the largest companies in the world to push staff towards switching off their voicemails, in a move intended to streamline operations and boost productivity
peopleCoca-Cola staff urged to switch it off to boost productivity
Sir David Attenborough
environment... as well as a plant and a spider
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'