Baugur emerges as potential backer for Hamleys MBO

Baugur, the Icelandic retail investor, has emerged as the unexpected backer of a management buyout bid that is being worked up at Hamleys, the toy shop.

It is thought that Hamleys, with its world-famous store on Regent Street, has also attracted the attention of at least one other potential suitor.

Baugur is understood to be providing money for a management offer worth up to £46.2m or 190p to 200p a share.

In March, Hamleys gave "authorisation" to its chief operating officer, John Watkinson, and finance director, Ian Parker, to "explore financing for a possible management buy-out". The source of that finance was not known until yesterday. Analysts said it was a new departure for Baugur to choose a company that is not considered to be in trouble. The Icelanders have previously bought stakes in the likes of Arcadia and are currently sitting on a 23 per cent holding in Big Food Group.

Rhys Williams of Seymour Pierce said: "This is bizarre for Baugur. They buy real down-and-out stock. Hamleys has been on a recovery path for two years and the shares certainly haven't under-performed the market."

A deal would make Hamleys the latest in a series of retailers that have been taken private or are currently to be on the receiving end of a bid. The company's shares closed up 14.5p to 191.5p. No formal approach has yet been made by the buyout team. Analysts said its reported 190p to 200p bid proposal would be attractive but not a knock-out offer. The other interested party is believed to be a UK company that has private equity support.

Peter Jones, of KBC Peel Hunt, said: "You have to take a view on what the company can do. Hamleys is highly dependent on one store. It is yet to be proven whether it can leverage the brand, for instance through direct mail or internet sales ... It is facing a tougher consumer climate and uncertain levels of tourist trade given the fear of terrorism."

Simon Burke, Hamleys' chairman, has spearheaded the revival of the business, which was suffering from poor product supply and uncompetitive pricing. He is not believed to be interested in any management buyout bid and is reckoned to be looking to a job with a bigger retailer.