Woolworths rejects offer by Iceland chief Walker

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The Independent Online

Woolworths has rejected a surprise offer to acquire its retail division by Malcolm Walker, chief executive of the frozen food specialist Iceland.

The high-street chain confirmed that a consortium headed by Mr Walker, which includes the Icelandic investment group Baugur, had made an indicative approach, but said it undervalued the 815-store business.

Woolworths also said the offer by Mr Walker, who worked for the sweets-to-DVDs retailers 37 years ago, would involve a complex restructuring that is "not achievable in practical terms".

Woolworths' stores have struggled to compete against the likes of the catalogue giant Argos and the non-food offer of the big grocers for years.

The consortium does not want to buy EUK, Woolworths' entertainment wholesale division, or 2 Entertain, its video publishing joint venture with the BBC. Some City analysts believe that separating Woolworths' ailing retail chain from its publishing and wholesale divisions is one of the few avenues left to deliver value to shareholders.

Mr Walker wants Woolworths' board to agree to maintain most of the group's debt and wipe out its pension deficit. According to Woolworths' annual report, it had net debt of £124m and a pension deficit of £48.2m, which is set to be revalued.

The consortium wants to run Woolworths as a going concern, while still enabling Mr Walker to retain his stake and board position at Iceland.

Woolworths added: "It required the company to retain all the pension liabilities for current and former employees of the retail business. This is unacceptable to the board."

There is also disagreement over the financial liabilities on 145 store leases, which are owned by the parent company, not the retail division.

Baugur, which owns 10 per cent of Woolworths, and Mr Walker were not available for comment yesterday.

The rejection of the takeover approach capped a busy week for Woolworths, which named the former Focus DIY boss Steve Johnson as chief executive on 12 August.

For the year to 2 February, Woolworths' retail division delivered an adjusted pre-tax profit of £3.2m. The Woolworths board believes there is "considerable opportunity" to build a sustainable retail business, based primarily on its small to medium-sized stores.

Woolworths' share price has tumbled over the past 12 months and closed at 6.55p last Friday. For the 25 weeks to 26 July, Woolworths stores' like-for-like sales fell by 6.7 per cent.

Mr Walker started his retail career at Woolworths in 1971 as a deputy manager, but was fired for focusing too much of his energy on setting up Iceland. After leaving Iceland in 2001 following a controversial share sale, he returned as chief executive of the frozen food retailer in 2005.

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