Pension deal clears way for Baugur takeover of Big Food

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The main stumbling block to Baugur's £192m bid for Big Food Group was removed yesterday after the Icelandic group struck a deal with the struggling retailer's trustees over the funding of its pension shortfall.

Shares in BFG closed up 2.75p at 95p despite the group announcing a continuing decline in five-week like-for-like sales, as optimism grew that the Baugur deal would go ahead. Bill Grimsey, the chief executive, said: "We can now get on and get this concluded."

The largest part of the business, the food store Iceland, saw a decline in sales of 3.4 per cent and lost more ground to the major food retailers.

Iceland's problems stem primarily from competition in the convenience market, where Sainsury's Local and Tesco Metro have aggressively opened new stores in high street locations where traditionally Iceland has been the dominant player. Mr Grimsey said that "there have been very big changes in the industry, resulting in fierce downward price pressures".

Poor summer weather was also cited as a reason for the drop in sales, as demand for soft drinks, ice-cream and barbecue items all fell.

There were positive elements to the trading statement; Woodward Foodservice, the delivered food wholesale retailer, saw sales growth of 27 per cent while the most recent sales trends at Iceland are improving. Mr Grimsey is confident that Christmas, traditionally Iceland's strongest time of year, will be the company's best yet, with a new advertising campaign set to be launched this weekend.

Baugur is still looking at Big Food Group's books, a process which Big Food Group confirmed may still take several more weeks.

Several analysts feel that a price of 110p is no longer justifiable and this view would appear to be backed up by the market price of the shares, which are still trading at a 15 per cent discount to the provisional offer.

Baugur owns 28 per cent of the issued capital of BFG.