Baugur trumps Waterstone as it raises Hamleys bid to £58.7m

Baugur, the Icelandic retailer, raised its offer for Hamleys to £58.7m yesterday, trumping a bid for the toy retailer from the bookselling entrepreneur Tim Waterstone. Baugur is offering 254p per share for the company, 10 per cent more than Mr Waterstone offered last week.

The move marks the latest twist in an increasingly feverish bid battle for Britain's best known toy company, which has only recently started to recover after years of under-performance.

Hamleys' shares soared 20.5p to 253.5p on the news, although analysts expressed bewilderment at the prices being offered. "It's gone beyond anything reasonable," said Robert Brent, an analyst with KBC Peel Hunt. "Investors will be very happy to take the 254p offer, even if nothing else comes forward."

A spokesman for Mr Waterstone had no comment on his intentions. Mr Waterstone, who is backed by the private equity group Rhone Capital, revealed on Tuesday that he now owns 15.2 per cent of Hamleys' shares. Baugur claims to have either bought, agreed to buy or received acceptances for its offer from shareholders representing 25.2 per cent of Hamleys shares.

Baugur has bought stakes in a number of UK retailers, including Big Food Group, House of Fraser and Somerfield, but has yet to pull off a full takeover. It plans to expand Hamleys, with whom it already has a trading relationship. It is a franchise partner in The Bear Factory, Hamleys' chain of stores which specialise in custom-made teddies. Baugur's bid includes Hamleys' operational management but not its chairman, Simon Burke.

A spokesman for Baugur said Hamleys "is worth more to us because we have the management on board and because we intend to use the cash from the business to develop it, not to expand another chain of stores".

One beneficiary of the bid battle is the former Hamleys chairman Howard Dyer. He still owns 5 per cent of the company, a stake currently worth nearly £3m.

Yesterday the company's independent directors issued a statement repeating their earlier advice to shareholders to take no action. It is happy to see the two bidders "slug it out" for shareholders' benefit.

Sales at Hamleys' Regent Street store have slowed since the end of March because of a suspension of service on London Underground's Central Line and a drop in tourism caused by the war in Iraq and concern about terrorism, the company said last month.