Iceland blows chill over Morrisons

Shares in Bradford-based Morrisons fell 3.2 per cent, a fall of 10p to 298.3p, after analysts warned that the Iceland estate is inferior to Morrisons and shareholder value is more often destroyed by acquisitions than boosted.

In addition there are fears that Morrisons’ £1bn share buyback could be suspended to pay for the deal.

Yesterday Malcolm Walker, the Yorkshire-born founder of Iceland, stepped into the fray, saying that he wants to buy the 67 per cent stake which is held by Landsbanki.

He added that he has no intention of selling his minority stake in the business.

Mr Walker and other senior managers own the remaining 23 per cent stake in Iceland.

“We are still interested in buying the business,” he said.

“People are getting ahead of themselves,” he added.

It is understood Mr Walker tabled a £1bn bid for Iceland last year, but this was rejected.

Analysts believe Iceland could fetch £1.5bn in total.

Earlier this month, officials responsible for winding up Landsbanki appointed UBS and Bank of America-Merrill Lynch to auction the 67 per cent stake in Iceland Foods, which passed to the bank following the collapse of Icelandic investment group Baugur.

On Sunday it emerged that Morrisons, Britain’s fourth-biggest grocer, is potentially interested in buying Iceland Foods, while analysts believe other grocers and private equity firms will also look at the business.

Private equity companies could include Apax, BC Partners, CDR and Lion.

Analyst Clive Black at Shore Capital said: “In general we would say that ‘the trade’ should have a better chance of generating synergies and so the ability to pay more than private equity for the retailer.”

MF Global analyst Mike Dennis said: “We are not sure if Malcolm can raise the extra £500m to compete with bids from Morrisons, Asda or private equity.”

Mr Walker, who is yet to meet UBS and Bank of America-Merrill Lynch, declined to comment on financing, but said that management including himself were not looking to sell their 26 per cent stake.

“Iceland will continue as an independent and autonomous business, hopefully under its present management.

“Either we’ll own it, or we’ll have a friendly partner as we had with Baugur, and even Landsbanki,” he said.

The takeover of Iceland could help Morrisons’ to meet its ambitious expansion targets in the convenience store sector.

The larger size of the Iceland stores – which measure up at 7,000 sq ft on average – could suit Morrisons’ bigger format ambitions.

Mr Black at Shore Capital said: “The rationale for Morrisons to look at Iceland is clear to our minds.

“Morrisons lacks the format diversity of Sainsbury’s and Tesco, with no presence in the convenience or hypermarkets segments.

“In a market where, despite much counter perception, planning permission for large stores is difficult to obtain, without format diversity space growth is near impossible to achieve at any material sustainable extent.”

He added that Morrisons and Leeds-based Asda most critically face this challenge.

Buying Iceland would lift Morrisons’ market share towards rivals Sainsbury’s and Asda and give a significant boost to to company’s plans to expand into convenience stores.

Iceland Foods has a 1.9 per cent share of the UK grocery market, according to market researcher Kantar Worldpanel.

The compares with Morrisons’ 11.9 per cent, Sainsbury’s 16.3 per cent, Asda’s 17.4 per cent and Tesco’s 30.4 per cent.

Chain founded 40 years ago

Iceland dates back to 1970 when founder Malcolm Walker opened his first shop.

By 1984 Iceland had 81 stores and floated on the London Stock Exchange.

In 2001 new chief executive Bill Grimsey identified massive problems which plunged the business into a £120m loss.

Iceland was taken private by a consortium headed by Baugur in 2005. Landsbanki took on Baugur’s stake when the Icelandic investor collapsed.

Iceland was put up for sale at the beginning of 2011 as part of the winding-up process of Landsbanki, which also failed when the Icelandic banking system imploded.

Last autumn Mr Walker offered £1bn to buy back the chain but his offer was rejected.