UK supermarket group Morrisons is rumoured to be considering a £1.5 billion bid for frozen food specialist Iceland, which if completed would catapult the Bradford-based business into the world of convenience retail.
Although Morrisons is not commenting on the speculation reported in The Sunday Times, analysts believe that the deal would make sense for both parties considering the financial situation at Iceland parent company Landsbanki and the future plans of Morrisons.
Failed Icelandic bank Landsbanki owns 67 per cent of Iceland and would welcome the financial boost a sale of this scale would bring, while Morrisons said last year that convenience retailing is very much part of its imminent growth strategy and the acquisition of Iceland’s 750-plus store portfolio would open the company up to many new parts of the UK.
A major foray into the e-tail world was also earmarked at the time, and Morrisons has since purchased children’s product retailer Kiddicare in a deal worth around £70 million, showing that new CEO Dalton Philips is quick to take action when the right deal arises.
On May 10th the Landsbanki Resolution Committee brought in UBS and Bank of America Merrill Lynch as financial advisers, with one of their stated tasks to recommend for or against a sale of Iceland Foods.
Meanwhile the Landsbanki Resolution Committee last week appointed the communications specialist Headland Consultancy and was said to be “considering its options regarding the stake it holds in Iceland Foods Group”, which suggests that sales negotiations are underway.
David Buik, Retail Analyst at BGC Partners, said: “Landsbanki has a number of problems, so this sale would make a lot of sense.
“It would be quick and clinical, and Iceland would be much more valuable to Morrisons than it would to a private equity firms, also being linked with a takeover deal.”
As well as private equity interest, there could be a rival bid from Iceland founder and current CEO Malcolm Walker, who holds a 26 per cent stake in the business and would be entitled to make an offer of his own alongside other members of his management team.
Industry commentators see Morrisons as the ideal suitor though, as it would help it gain market share on Asda and Sainsbury’s in the race to be the UK’s second largest grocer behind Tesco.
Retail Analyst Jonathan Banks told Retail Gazette: “It would be a marvellous piece of business for Morrisons if the price is right, and it would have fewer Competition Commission issues to worry about than if a company such as Tesco made a bid.
“Iceland would increase the supermarket’s presence in good locations where it currently does not have a large proportion of stores.”
How exactly Morrisons would utilise its new property is still a matter of speculation, but Banks says there would be “no point” in keeping the acquired company’s name because even Iceland itself did not focus solely on frozen goods.
“It’d be interesting to see how Morrisons would move away from the core Iceland business,” Banks commented.
“Creating a smaller version of Morrisons would make sense, much like Asda has done with its takeover of Netto.”