Iceland's chief executive, Malcolm Walker, is expected to meet Woolworths chairman, Richard North, this week to discuss a new takeover bid for the pick-'n'-mix retailer.
After rejecting Iceland's earlier approach, the Woolworths chairman has now agreed to meet Mr Walker. Sources said both sides had agreed that a meeting to discuss a new offer from the Iceland consortium was on the cards and would take place as soon as possible.
The first offer by Mr Walker, set out in a letter two weeks ago, valued the 815 stores at £50m. Shares in Woolworths, which also owns entertainment and wholesale divisions that are not part of the offer, closed up at 7.08p on Friday.
But Iceland's bid was rebuffed by Mr North on the grounds that it undervalued the business, was too complex, and that it meant that Woolworths would have to retain all the pension liabilities for current and former employees of the retail business. He also said the group reiterates its belief that there is "considerable opportunity" in building on its small and medium-sized stores.
But analysts dismiss Woolworths' claims, arguing the group has had years to turn around the stores. "The problem is that Woolworths has diversified away from its core business. No one knows why they should go there anymore," said one.
Mr Walker's Iceland consortium is backed by the Icelandic Baugur group which already owns a 10 per cent stake in Woolworths. Baugur, which employs 54,000 people worldwide, is one of the UK's biggest retailers; over the past few years it has snapped up Hamleys, Goldsmiths, Whistles and House of Fraser.
Banking sources suggest the terms of any potential Iceland bid are up in the air as it is impossible to put a value on the ailing stores until the extent of pension liabilities and debt is known.
"If there is agreement for a deal you might find Iceland pays £1 for the stores but takes on some of the pension liabilities and the debt – a bit like a dowry. Or it might be there is a clean share offer but no debt," said one banker. Sources say pension liabilities could be as high as £150m while debt is as much as £180m.
Analysts say Iceland's multi-millionaire founder, who worked as a management trainee at Woolworths over 40 years ago, is determined to press on with a bid and is convinced he can turn Woolworths' stores around by taking them back to being a proper "variety discount retailer". They point to his strategy at Iceland which – bar one year – has recorded increased profits for the past 30 years, since he started the chain.
On sales of £1.7bn last year, Woolworth stores were not profitable, though many of the 700 small to medium-sized shops do extremely well. The biggest 100 stores suffer the worst trading and could be sold as part of the latest review.
Mr Walker is keen to move forward with his bid before Steve Johnson, the new Woolworths chief executive, arives on 1 September from Focus DIY.Reuse content