Morrisons mulls a £1.5bn Iceland bid

By This Is Money
Updated: 05:40 EDT, 23 May 2011

Wm Morrison is considering a £1.5bn bid for frozen food group Iceland in a push to expand further beyond its Yorkshire roots into the South East.

Ambition: Iceland chain could be turned into Morrisons convenience stores

The supermarket group also believes it could convert Iceland's outlets into high street convenience stores selling fresh food.

It would face competition from Iceland founder and chief executive Malcolm Walker, who is preparing to make an offer of his own.

He holds a 26% stake along with management and has the right to match any outside bid.

Iceland is 67% owned by collapsed Icelandic bank Landsbanki, which last week announced that it wanted to sell its stake.

Walker founded Iceland in 1970 but was ousted as chairman in 2001. He was brought back by Icelandic retail group Baugur, who took over the company in 2005.

The frozen food store group has 750 outlets and employs 22,000 people.

Morrisons said: 'We do not comment on specific transactions.' But retail industry sources say it is the most credible outside bidder.

The sell-off of the Iceland stores is a rare opportunity for the big supermarket groups to grab more retail space in the face of planning restrictions and competition regulations. Asda is also thought to be interested.

Morrisons last week held a beauty parade of investment banks to advise it on a possible bid.

However, sources said it was 'early days' and the group may decide against proceeding with an offer. The sale process is expected to start in September.

A successful takeover by Morrisons would be a coup for new chief executive Dalton Philips, who joined the group last year from Canadian chain Loblaw.

Morrisons has a 12% market share, compared with Sainsbury at 16% and Asda at 17%. Tesco still dominates with a 30% share. A deal with Iceland would take Morrisons' market share to 14% and would transform the chain, which lags behind its competitors in the South East, where its market share is half that in the rest of the country.

The group also sees the small convenience store format as a major opportunity and is opening its first one in July in Ilkley, West Yorkshire, as part of a trial.

Philips paid £70m in February to buy online baby products business Kiddicare as a first step into the online shopping market, and has also taken a stake in the New York-based online grocer Fresh Direct.

Morrisons has struggled to bounce back from its botched takeover of Safeway in 2004, which was masterminded by Sir Ken Morrison, the son of its founder. A string of profit warnings followed.

Landsbanki - a major casualty of the Icelandic banking crisis - took control of the retailer Iceland in 2008.