Irish retail group purchases 28 per cent stake in Budgens

Musgrave, Ireland's largest retail company, yesterday agreed to pay £89.4m for a stake of up to 43.5 per cent in Budgens, the supermarket group, but said it had no immediate plans for a full takeover. The family owned Irish firm will buy 28 per cent of Budgens' ordinary share capital plus convertible unsecured loan stock, which will be redeemed by the year 2003.

Musgrave, Ireland's largest retail company, yesterday agreed to pay £89.4m for a stake of up to 43.5 per cent in Budgens, the supermarket group, but said it had no immediate plans for a full takeover. The family owned Irish firm will buy 28 per cent of Budgens' ordinary share capital plus convertible unsecured loan stock, which will be redeemed by the year 2003.

The shares are being sold by Germany's largest food distributor Rewe, which acquired them in 1993. Shares in Budgens, which operates 200 supermarkets and convenience stores in southern England, rose 8.75p on the news to close at 79.25p. Yesterday Musgrave said it would not bid for the remaining Budgens shares for at least 12 months and then only with the consent of the Budgens' board.

Michael Walsh, Musgrave's finance director, said: "We have given an undertaking to Budgens not to make an offer for the remainder of shares other than if there is the emergence of a third-party offer. Clearly, after the first 12 months have gone by, we will be keeping our options under very, very clear review." Andrew Marsh, an analyst at Charterhouse Securities, said: "They are going to look to buy Budgens at some point and there could be a bidding war."

Last year the British supermarket group reported pre-tax profits of £14.6m on sales of £451m. Musgrave has one of Ireland's largest wholesale operations and supplies the Centra and SuperValu franchise chains. It has also taken a significant position in the Northern Ireland market and has operations in Spain.

Seamus Scally, Musgrave's group managing director who will join the board of Budgens as part of the deal, said independent retailers in the UK controlled only 9 per cent of the convenience shopping sector, compared with around 48 per cent of the market in Ireland. "We have had a relationship with Budgens for a number of years and have been members of a buying consortium with them. Their supermarkets and convenience stores compare very favourably with our stores in Ireland. Budgens is already looking at the possibility of franchising independent retailers and if that is successful, they expect to have about 50 of those stores within the next couple of years."

Budgens welcomed the Musgrave move. Its chief executive Martin Hyson said: "There's very good chemistry between the two companies."