Londis forced to delay takeover vote

Rival bid from Big Food Group prompts re-think on Musgrave's £40m agreed offer
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The Independent Online

A pre-christmas scramble is taking place in the retail sector, but it is the humble corner shop that is the centre of attention after yesterday's move by the Big Food Group towards a takeover of Londis.

Big Food Group (BFG), the owner of the high street chain Iceland, has muscled in on a deal between Londis and Musgrave, an Irish retailer. It claims the Londis management is being unfair to its shareholders by accepting a deal that sees them pocket a multi-million pound windfall while its shareholders get next to nothing. It wants to put forward its own offer that doubles the payout to shareholders. Londis, which acts as a supplier to 1,956 independent retailers with 2,200 stores, has already agreed to a £40m takeover by Musgrave.

Last night the Londis management team dramatically bowed to pressure and adjourned the shareholder vote on the Musgrave deal, due to take place on 30 December. It said there was now a number of parties interested in the company and it would give them all an opportunity to look at its books. Each Londis retailer is a shareholder in the company and stands to gain £10,139 from the Musgrave offer. But the four directors that run Londis will pocket £20m between them, thanks to an option that gives them the right to 51 per cent of the value of the company in a change of control. This is proving to be a large sticking point with the Londis shareholders that have worked to build up the business.

BFG appealed directly to Londis shareholders yesterday, pledging £40.3m for the company and promising that £39.7m of this will go to Londis shareholders if they reject the Musgrave deal. The directors will only get £600,000 to share between them, but Londis shareholders look set to get £20,300 over two years.

"The lion's share of the deal should go to the current shareholders," Bill Grimsey, the chief executive of BFG, said yesterday. "The management has done a good job, but this is a situation where the management will get around 50 per cent of the sale proceeds. The shareholders have had an enormous part in creating the value of the company."

Londis, it seems, isset to face a strong challenge to the Musgrave offer as the number of shareholders against it grows by the day. Kishor Patel, who owns two Londis stores in Bedfordshire, is organising a league of outraged shop owners who want to vote against the Musgrave offer and yesterday he said he had 400 on his side. He has been a member of Londis for 17 years and feels badly let down by the management's greed.

"The management has underestimated the loyalty Londis shareholders have to the company. We do not mind being sold to another company, but there are four people deciding who will take a great chunk of the money and leave. These retailers put Londis where it is now," Mr Patel said. Shareholders granted Graham White, the chief executive, Andrew Wallace, the company secretary, Terry Bedford, the sales director, and Denise Buller, the commercial director, the 51 per cent option as far back as 1996. Mr White stands to make £6.8m from the Musgrave offer, Mr Wallace £4.8m, Mr Bedford £4.8m and Ms Buller £4m. It emerged last week that they have received a special £7.1m payout this year after renegotiating their service contracts.

The BFG promise to deliver £20,300 to each shareholder could turn out to be an empty one if the management sticks to its contractual rights. BFG is relying on 'shareholders and the wider business community to persuade the management to give up their £20m payout. "We are appealing to the management's sense of fair play. When it comes to it, we believe we will get their co-operation," Mr Grimsey said.

Rhys Williams, an analyst at Seymour Pierce, can understand why BFG wants its hands on Londis. It already owns Bookers, a cash and carry network and Premier, a neighbourhood store supplier. Buyers are attracted by the growth in the convenience sector and want access to its extensive distribution capabilities. The local store market was once the forgotten outpost of retailing, with crusty shelves of Pot Noodles and mouldy vegetables. The big supermarket retailers threatened to wipe out corner shops and local retailers entirely, with their big out-of-town stores and their buying power. But shoppers are returning to their local corner shops.

Mr Williams said: "The convenience store sector is growing and they have been improving their product range. Some of their fresh food is actually edible now. The swelling ranks of 'cash rich, time poor' people are using only what is closest to them to do their shopping." Big supermarket chains are unable to expand their large stores much further, and the larger retailers now have their eyes on the small chains. Tesco bought 1,200 stores from local store operator T&S last year, which it is turning into Tesco Express outlets. J Sainsbury is opening stores in numerous petrol stations and the Co-op bought the Alldays chain last year. BFG has promised to keep Londis's ownership structure.

The last remaining large player in the market is the Spar group, which operates on a more traditional franchise arrangement. "This is a good deal for BFG if they can pull it off. Londis will bring on board a lot of turnover at a decent price, and it will be earnings enhancing in the first year," Mr Williams said. "But BFG is relying on a clear rejection from shareholders and the business community in to scaring the management team to back down. It will have a struggle to get Londis management to give up their millions."

Mr Patel, although set against the Musgrave deal, is certainly not yet willing to accept the BFG offer, and so will have been cheered by yesterday's news that a number of groups are circling the company. At least one of the potential players is Nisa Today, another buying group for independent retailers. Its board met on Wednesday afternoon and it has set up a sub-committee to look at whether it can put forward an offer.

The management cannot block the vote on the Musgrave deal, as its option is only triggered once a change of control is agreed. Only 25 per cent of the vote has to go against Musgrave to throw out the bid. But Londis's decision to stall on the vote means BFG can, at least, call off the couriers that it had dispatched to deliver proxy voting forms to Londis shareholders. Londis can call off the area managers that are out on the streets door stepping shop owners to secure votes. And the shop owners can get on with keeping their tills ringing over Christmas.