The playboys, the mystery men and the Iceland raider

Somerfield may not be the sexiest store around, but now it is open to offers, it has started a three-ring, £1bn takeover battle between Baugur and two sets of brothers in arms. Abigail Townsend and Clayton Hirst report

Just popped out for some Resolve to cure that hangover? Bacon and eggs for a fry-up, maybe? The newspaper you are now reading? If so, there's a chance you will have visited a Somerfield. The chain has carved out a niche in the burgeoning convenience sector, fostering an image as the local store. This, along with a property portfolio that could be worth more than £1bn, means us shoppers are no longer the only buyers.

Just popped out for some Resolve to cure that hangover? Bacon and eggs for a fry-up, maybe? The newspaper you are now reading? If so, there's a chance you will have visited a Somerfield. The chain has carved out a niche in the burgeoning convenience sector, fostering an image as the local store. This, along with a property portfolio that could be worth more than £1bn, means us shoppers are no longer the only buyers.

Somerfield said last week it was opening negotiations about a possible takeover worth more than £1bn. There are three potential bidders: Robert Tchenguiz, who along with brother Vincent is one of the UK's most prominent property tycoons; the Livingstone brothers, who, by contrast, are some of the most secretive; and Icelandic raider Baugur.

Baugur

Iceland is not a name that trips off the tongue when discussing international business players, but the Reykjavik-based retailer Baugur is in love with the British high street and likes nothing better than showing that love by splashing the cash. The chain set off interest in Somerfield in February with an indicative 190p-per-share, or £1.03bn, approach. The board rejected it but the shares soared as traders predicted this was not the end of the matter. They were proved correct last week, with Baugur confirming a revised proposal had been put to the board.

Should Baugur win control, it would be its second UK deal this year after snapping up The Big Food Group (BFG), owner of frozen-food chain Iceland, for £326m. The British invasion started, however, in 2003 when it acquired toy store Hamleys (it tried and failed to buy Arcadia in 2000). Since then it has picked up Oasis, Karen Miller, Whistles and the Goldsmiths jewellery group.

Its modus operandi is to buy a stake first, sparking intense speculation about if and when it will make a full bid. It is thought to be keen to invest in the struggling French Connection and owns 5.5 per cent of Somerfield.

There has been talk that Baugur would bundle Somerfield in with BFG, but as the group has only recently separated Iceland from the underperforming Booker wholesale unit, it seems unlikely. ABN Amro analyst James Collins said he was sceptical, adding: "We believe the synergies with Iceland are limited given the limited product overlap and complex cost bases that would not be easily rationalised. We also believe that a merging of the brands would make little financial or strategic sense."

And strategy is its strength. Baugur may, on first appearances, have taken something of a scattergun approach to the British high street, but this is not the case. Instead, the 37-year-old boss, Jon Asgeir Johannesson, has alighted on fashion and food and tends to let management get on with it. Indeed, should he succeed with Somerfield, it is understood that the highly rated management, headed by chairman John von Spreckelsen and chief executive Steve Back, will be left in place.

Eyebrows were raised over the BFG deal, with some doubtful that Baugur could turn it around. But overall, its British love affair has won praise. Richard Ratner, retail analyst at Seymour Pierce, says: "They are very good at what they have done so far. They have concentrated on niche areas. They overpaid for Hamleys but they needed to establish themselves over here.

"I'm sceptical about buying things at the moment: it could be a very stiff two years. But they have concentrated on areas that we see as still being very positive, such as younger fashion, and Somerfield is a good company."

The Livingstone brothers

They are property industry outsiders. Secretive, private, some say even shy, Ian and Richard Livingstone are rarely seen schmoozing with their peers in the clubs and bars of Mayfair. But from their West End offices, the brothers have created a tidy property empire. Through their London & Regional private company, they are said to have amassed a worldwide portfolio worth £4bn.

Also with offices in Stockholm and Helsinki and employing 80 people, London & Regional owns the Hilton Hotel in Park Lane, hundreds of stores leased to Woolworths, and Marks & Spencer's historic HQ in Baker Street.

The pair, like the Tchenguiz brothers, are part of a new breed of entrepreneurs who construct complex and highly leveraged transactions to buy properties. Their trademark is the speed with which they put deals together: it was just such a turn of pace that helped them secure the £115m M&S deal. While their offer for Somerfield is on paper lower than that from the Tchenguiz brothers, sources say the Livingstones' deal has fewer strings.

Their style of business has won grudging praise from peers. The chief executive of a traditional property firm says: "They are very successful and have amassed a mega portfolio. They are simply not bothered by what other people in the industry think of them."

Another industry player, Simon Cooke, head of property at real estate investment firm Hotbed, says the Livingstones are far more sophisticated than the Tchenguiz brothers. He adds: "Richard and Ian are much more controlled; they don't have that lifestyle, though they are arse-kickers when they want to be. Ian is an exceptional businessman, Richard has a great property nose, and the deals they have done are exemplary."

Others, however, describe them as "arrogant" and "difficult".

Ian, 42, started his business career by setting up a small chain of opticians. In 1992 he acquired the David Clulow chain. His brother Richard, 40, is a chartered surveyor.

The pair started property trading through their first joint company, Strategic Properties, which they sold to Development Securities in 1994 for £92m. They used the proceeds to fund their current ventures.

Things haven't always gone their way, however. In the late 1990s the pair were embroiled in a row over plans to build a cinema complex at Crystal Palace in south London. Bromley Council granted planning permission for the 20-screen multiplex, but the authority then fell out with the developers after they proposed to cut costs by changing the design.

The move prompted criticism from London Major Ken Livingstone, as well as local MPs Tessa Jowell and Malcolm Wicks. The scheme was abandoned in 2001. But this was a minor setback in the grand scheme of things.

The ultimate parent company to the Livingstones' empire, Nutmeg Ltd, is incorporated in Guernsey, so it is difficult to calculate their exact wealth. Accounts filed at Companies House show that their UK holding company, London & Regional Group Holdings, has stakes in 10 separate business, many of which are themselves holding companies.

But the accounts reveal that at the last valuation in September 2003, London & Regional's UK property portfolio was worth £1.7bn. On top of this the company made a profit before tax of £69.8m, showing that for the Livingstone brothers, it pays to be outsiders.

The Tchenguiz brothers

"Chalk and cheese" is how one property insider sums up the Livingstone and Tchenguiz brothers, and they have a point. For every attempt by the Livingstones to stay out of the headlines, so it seems Robert and Vincent, aged 44 and 48 respectively, take a step further into the limelight.

The Tchenguiz family left Iraq for Iran in the 1950s before fleeing to the UK after the 1979 revolution. The boys, however, were educated in America and are now fully paid-up members of the international playboy jet set. There's the fleet of vintage cars, the yacht, the Mayfair office, homes in Kensington and summers in St Tropez. There are also the celebrity girlfriends: Robert once dated Caprice, while Vincent admits to enjoying weekends of clubbing, champagne and meeting girls. His other hobby is gambling: he scooped a cool £1m betting on the outcome of the Euro 2004 football tournament and recently made $8m (£4.2m) in foreign exchange trading. Vincent started out as a trader but insists now that he only does it "for fun".

Then there are their deals. As some in the industry see it, they are not so much property gurus as financiers. The two, who set up their property business Rotch in 1982, devised a different way of doing deals. They securitise their future rental income, rather than borrow against the value of the property, as do most traditional players. It is an unorthodox approach that has not always won fans.

One property investor says: "I wouldn't go into a joint venture with them if they were the last people on this planet with any money. I would rather live in a tent. Their background is much more banking and finance than property and people."

Yet for all the grumbling, their approach is evidently working. The brothers' commercial property portfolio is believed to be worth around £4bn. They are worth some £550m, although Rotch, which owns Shell-Mex house on the Strand and the London HQ of WestLB, plus around 60 Somerfield stores, did lose £15m in the past financial year.

Their focus now, however, is not on Rotch but their own interests, set up around 18 months ago under the umbrella of the parent company. Vincent launched Consensus, which last month struck a £366m sale and leaseback deal with Tesco, while Robert set up R20, which has built up a portfolio of pub properties.

It is Robert who, along with backers Apax Partners and Barclays Capital, has made the 205p-a-share approach to Somerfield. He plans to retain the management team and is understood to be impressed at how they turned the chain around after tough times following the Kwik Save acquisition in 1998.

At this stage, though, no one is prepared to gamble on which of the three, if any, will win Somerfield. Baugur owns shares, but Robert Tchenguiz is known to rarely back down. But one thing is for sure. From your local shop via some of the country's wealthiest men and most acquisitive companies, it will have been some journey for Somerfield, the humble supermarket chain with a £1bn price tag.