Baugur approach to House of Fraser set to drive shares higher

The department stores group House of Fraser has received a tentative bid approach, believed to be from the acquisitive Icelandic group Baugur.

In a statement yesterday, House of Fraser stressed that the approach was at a "very preliminary" stage, and said: "There can be no certainty that an offer will be made, nor as to the terms on which any offer might be made."

House of Fraser shares stood at 119p at the end of last week, valuing the company at £402m. They were expected to be chased sharply higher this morning.

Baugur, which owns a string of well-known UK retailers, snapped up a 10 per cent stake in House of Fraser last month. That came just weeks after Apax, the private equity firm, approached House of Fraser before walking away. In the past, the retail entrepreneur Sir Tom Hunter has also stalked the group.

This is the second time Baugur, which is run by the Icelandic entrepreneur Jon Asgeir Johannesson, has targeted House of Fraser. In 2003, it bought a 21 per cent stake, but sold the shares the following year.

Baugur owns the Hamley's toy shop, the frozen food retailer Iceland, the jewellers Goldsmiths and Mappin & Webb, and several fashion chains, along with stakes in French Connection and Woolworths. It was also a member of the consortium that agreed to pay £311m for Wyevale Garden Centres.

This latest move suggests that while some Icelandic investors are cashing in their foreign holdings, Baugur is still looking to expand abroad.

Bid speculation has persistently followed House of Fraser, despite the absence of an extensive freehold property portfolio.

Takeover talks with Apax were at an early stage when news leaked. During the shortlived discussions, the private equity group lost one of its key retail executives, Mike Ward, who joined Harrods as managing director.

House of Fraser was formed in 1849, when James Arthur and Hugh Fraser set up shop on the corner of Glasgow's Argyle Street and Buchanan Street. The group has 60 stores across the UK. Trading is healthy, with profits bolstered last year with the acquisition of Jenners in Scotland and Beatties in Birmingham.

Last month, House of Fraser unveiled a 4.6 per cent rise in annual profits to £27.3m.

In January, Baugur posted profits for 2005 of £257m, and said it was keen to further strengthen its operations after accumulating assets worth £1.3bn by the end of last year.