Iceland boss ‘in talks’ over Woolworths bid

Aug 25 2008 by Aled Blake, Western Mail

THE consortium stalking Woolworths could meet the retailer’s board in the next few days to discuss a possible £50m proposal, according to reports yesterday.

Malcolm Walker, who runs Flintshire-based Iceland – a business he founded in the 1970s and reacquired in 2005 after quitting four years earlier – is heading a consortium that has made a formal approach to Woolworths chairman Richard North about taking over the chain’s 815 stores.

That approach was rebuffed by directors last week. But reports this weekend suggest that Mr Walker remains interested in the chain’s stores and that a meeting with Woolies chairman Richard North to discuss a new offer was on the cards for the next few days.

The original proposal, which excluded the group’s supply businesses Entertainment UK and 2entertain, was dismissed on valuation terms and because the consortium did not plan to take on Woolworths’ debt and pension deficit.

The retailer generates £1.7bn in sales but profits have suffered thanks to competition from the internet and big supermarkets. It has just appointed former Focus DIY boss Steve Johnson as chief executive to lead a turnaround.

A source familiar with the situation told the Mail on Sunday newspaper: “Both sides are open to talks, but there needs to be agreement on some fundamental issues.

“Everyone agrees that there is value in the Woolworths business, but the question is whether that can be released under the guidance of Malcolm Walker or Steve Johnson.”

If successful retail analysts expect Mr Walker to replicate the back-to-basics strategy adopted at food chain Iceland, which he returned to run in 2005 after a run of poor results. He is likely to slash overheads and narrow the product range, the Sunday Times said.

The consortium believes that a shake-up is only possible if the chain were privately-owned, rather than in the full glare of the stock market. Mr Walker is backed by Baugur, which already owns 10% of Woolworths and a majority stake in Iceland.

Woolworths is working on its own strategic review and revealed last month that consultants believed it had the potential to build a sustainable business based on its small and medium-sized stores.

Its retail business has been battered by competition from supermarkets and internet retailers. The group saw like-for-like sales fall 6.7% in the six weeks to July 26, with margins under pressure because a greater proportion of trade came from CDs and DVDs, rather than higher margin outdoor products and clothing.

At its financial year end on February 2, Woolworths’ net debt was £124m. And according to Woolworths’ annual report, it has a pension deficit of £48.2m, but this is due to be revalued.

Mr Walker is a former Western Mail Welsh Business Achiever of the Year Award winner in the Western Mail Business Awards.

He started his career at Woolworths in the mid-1960s as a management trainee, which saw him becoming deputy manager of its Wrexham store. He eventually set up the first Iceland shop in Oswestry in 1970.