Baugur pounces on Big Food Group

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The Independent Online

Shares in Big Food Group soared 11 per cent yesterday after the owner of the Iceland frozen food chain revealed it had received a £379m takeover approach from its biggest shareholder, the Icelandic retailer Baugur.

Shares in Big Food Group soared 11 per cent yesterday after the owner of the Iceland frozen food chain revealed it had received a £379m takeover approach from its biggest shareholder, the Icelandic retailer Baugur.

A bid would end a traumatic stock market existence for the group founded by Malcolm Walker, which has never recovered from a catastrophic profits warning almost four years ago. Mr Walker was later embroiled in an investigation by the Department of Trade and Industry for selling almost £14m of shares in the company only days before the warning.

BFG, which was re-christened by its then new chief executive, Bill Grimsey, in 2002, admitted that Baugur had approached it with a 110p a share cash offer. It has agreed to open its books for Baugur, which has been linked with a possible takeover for BFG since it acquired a 15 per cent stake in it two years ago. BFG's shares climbed 10.5p to 102.75p.

The acquisitive Icelandic group, which is adding to its leading position in Iceland by buying up Britain's high streets, scooped a £26m profit from cashing in a 10 per cent stake in House of Fraser, the department store group, this week.

Baugur, chaired by Jon Asgeir Johannesson has a stake in Somerfield. It also owns Hamleys, the toy shop group, Goldsmith, the jewellers, and recently bought Karen Millen and Whistles to create a mini high street fashion conglomerate with its Oasis and Coast chains.

BFG said Baugur had teamed up with "certain other investment partners", prompting speculation that one of them was Tom Hunter, the Scottish retailer who is close to Baugur and who also sold a chunky stake in House of Fraser on Monday.

BFG seized the opportunity yesterday to warn that sales across the group had deteriorated since its profits warning in July. It said like-for-like sales at its core Iceland chain, which it is trying to reposition as a convenience store retailer, had slid 3.8 per cent in the 10 weeks to 10 September - accelerating the 0.5 per cent decline reported in the 13 weeks to 2 July. Meanwhile, underlying sales at its Booker cash and carry chain fell 4.1 per cent, dragging total group like-for-like sales down 3.2 per cent during the period.

Mr Grimsey, who is not part of Baugur's bid attempt, blamed rival supermarket chains for ratcheting up the pricing war during a summer that is generally thought to have been bad for food retailers for Iceland's woes. He denied the update was a profits warning, adding: "We have managed our margins well, largely mitigating the sales impact of the difficult weather through tight cost control."

Analysts cast doubt on the possibility that another bidder could emerge for BFG, pointing to the regulatory restrictions preventing an offer from a rival food retailer. Other prospective bidders are also likely to be scared away by its £260m debt mountain, its £192m pension deficit and its relative lack of freehold sites, analysts said.

Mr Grimsey said the board would be "minded" to recommend a cash offer of 110p, although in its statement BFG said Baugur has reserved the right to make an offer at a lower price after it has trawled through the books. "This approach is preliminary and there pre-conditions, including due diligence, which need to be satisfied before any formal offer can be made," BFG said.

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