Big Food soars as Icelanders eye up Iceland

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Big Food Group, the former Iceland frozen food company, saw its shares soar 58 per cent yesterday after a surprise move by the biggest retailer in Iceland to snap up a 15 per cent stake in the group.

Baugur, whose retailing interests span food, clothing and pharmaceuticals, dampened speculation that it was poised to make a takeover bid for Big Food Group, describing the shareholding as "strategic".

The Icelandic company spent £20.6m on its share-buying spree, paying up to 40p for 51.3 million shares that it felt were "undervalued". Shares in Big Food, which were traded at about 24p before Baugur made its move, closed up 14p at 38p.

Baugur, which also owns shops in Sweden and the US, was recently thwarted in its attempt to team up with Philip Green to buy Arcadia after it was rocked by a fraud allegation in Iceland. It netted about £55m after costs from its 20 per cent stake in Arcadia, which Mr Green recently took private.

"We believe that the Big Food Group is an undervalued business. We intend to be a supportive shareholder and look forward to developing a constructive relationship with the board," Jon Johannesson, Baugur's chairman, said. Before Baugur started buying shares in Big Food earlier this week, it had not had any relationship with the UK company.

Bill Grimsey, Big Food's chief executive, said he was looking forward to working with Baugur, which had "recognised the inherent value" of his group.

But analysts were stunned by Baugur's choice of investment vehicles. "What on earth is going on? If they are trying to put Big Food into play, the odd thing is it has been for sale in the industry for most of the last 10 years and nobody wants it. Why now?" said one food retail analyst.

Big Food, which also owns the Booker Cash & Carry unit, has struggled to find a role for itself on the high street and has issued a series of profits warnings. Earlier this month, it revealed that underlying sales at its core Iceland chain were down by 7.7 per cent.

Analysts speculated whether Arcadia's former chief executive Stuart Rose, who used to hold the same position at Iceland, might return to run the business. However, it is understood that Baugur has had no contact with Mr Rose, who is still considering his options.