Icelandic investor doubles Woolworths stake

Baugur, the highly acquisitive Icelandic investment company, has increased its stake in Woolworths to 6.18 per cent, the retailer confirmed yesterday.

A spokesman for Baugur said it previously held less than 3 per cent of the company and made a further acquisition on Wednesday, making it the largest shareholder in the group. The smaller tranche of shares was purchased about three weeks ago. The spokesman denied Baugur had reduced its stake in the fashion chain French Connection to pay for the investment in Woolworths, but declined to say whether the Icelandic group would launch a full takeover bid for the pic 'n' mix retailer. He said: "Baugur are opportunistic investors and would not be afraid to take a profit if a good enough offer were made."

Woolworths declined to comment other than to confirm that it was aware of the Baugur stake-building.

Shares in Woolworths have risen strongly in the past two weeks as rumours surrounding a bid gained credibility amid heavy trading volume. Yesterday its stock remained unchanged at 35.75p.

This week, WH Smith was rumoured to be interested in acquiring Woolworths, which has warned the market on profits three times in the past year. The latest warning came last month after the company was disappointed by negotiations to supply CDs and DVDs to Tesco.

The Baugur investment in Woolworths comes almost a year to the day since Apax Partners, the private-equity house, launched a bid for Woolworths valued at 50p to 55p a share. That bid fell apart after a second offer was made, at 58.5p, when Apax suddenly withdrew its bid after having been given a chance to look at Woolworths' books. Apax said it had been "unable to confirm certain key cash items".

Baugur has majority stakes in a number of UK retailers, including the women's fashion chains Karen Millen and Oasis, as well as the toy retailer Hamleys and the supermarket chain Iceland. It also holds stakes in 14 businesses across Scandinavia.

John Stevenson, an analyst at the broker Shore Capital, is not convinced that a bid will come. He said: "In many cases Baugur has simply maintained a position for investment purposes, making a future bid far from certain." He maintained his "sell" advice on Woolworths.

Baugur's colourful chief executive, Jon Asgeir Johannesson, was charged along with five associates with 40 counts of embezzlement and fraud in June 2005. He has been cleared on all but eight charges. Legal wrangling forced Baugur to withdraw from a £1bn bid for the UK supermarket chain Somerfield, although the company banked a £35m profit from the sale of its stake. Somerfield was eventually bought by Apax, Barclays Capital and the property tycoon Robert Tchenguiz.

Baugur recently reported a quadrupling of profits in 2005 to £257m.