Talking shop: Who's in the running for Iceland? - what the analysts say
Analysts have weighed in on the frontrunners to takeover frozen food retailer Iceland Foods
With Landsbanki's stake in Iceland Foods now up for grabs, both UK grocery retailers and private-equity firms are being touted as potential bidders for the frozen-food operator. Morrisons, Asda and Iceland founder and CEO Malcolm Walker have emerged as the frontrunners. just-food asked a number of analysts about who they predict will snap up the retailer.
Justin Scarborough, RBS
"For Iceland, everybody [is interested]. You can mention Morrisons, Sainsbury's and Asda. Tesco are obviously precluded from competition commission rulings from many years ago to make a full bid but will probably be interested in some stores, Sainsbury's have said they will probably be interested in some stores rather than the whole, and I'm sure Waitrose would be interested in some stores.
Then on Monday, we saw in The Daily Telegraph four private-equity firms mentioned, and that's before even mentioning Malcolm Walker. Anybody who is in the food retail world, or interested in it, of any capacity, would have to take a look at the assets as a duty to themselves and and to their shareholders.
Retail is mostly about location, and Iceland is renowned for a greater mix of lower social demographic customers than say the average in the industry. One would also speculate that their store locations are secondary and tertiary locations - they're not the best locations in the world. Any retailer looking at the whole of Iceland or pockets of stores are going to be very mindful of the customer base and the locations of the stores. If a retailer does buy it, they will be forced in a number of regions and locations to sell a significant number of stores, which would open up whole tranches of stores."
Neil Saunders, Verdict
"The two main contenders are Malcolm Walker - it's desirable for him to take control of the chain and to do many of the things that he's already set out - [while] the other front runner, so it seems, is Morrisons. Out of the grocery contenders, they are the player that could make the most of it. Morrisons has the view that this would help them have access to a lot more space, it would give them coverage in a lot more areas where they haven't got coverage and it would give them much more of a town-centre presence, which obviously they could run alongside the convenience store format that they've been looking at.
"The other one that's quite interesting is Asda. I think Asda would be a good fit, but I'm not sure that it would want to commit to buying Iceland to get that space. They have less of a need for it because they have very good market share and market coverage. The other issue is these are not the type of stores that Asda would be used to operating. They're much smaller.
"Tesco wouldn't have a cat in hell's chance of getting it through the Competition Commission or the Office of Fair Trading, and they wouldn't have a need for such an amount of space anyway. If it was sold and carved up they would be interested in some stores, but they wouldn't be interested in all of it. Waitrose would also be interested in some stores, but they wouldn't be interested in the whole thing because the demographic fit is all wrong.
"Sainsbury's wouldn't want to buy Iceland because they would want to get some of its stores, and that's an expensive way of getting a handful of stores.
Mike Dennis, MF Global
"Morrisons' potential bid for Iceland is, in our view, the right strategic move and would take Morrisons into the third position in UK convenience stores behind Tesco Express and The Co-operative Group (excluding Aldi and Lidl). It would also have big implications for Morrisons' evolving Internet shopping project (click and reserve) and increase its market share in the south of England.
"We should assume that the GBP1.5bn potential offer is for a controlling 67% of the equity owned by Landsbanki and the 7% owned by Glitnir bank. We stated last week that Morrisons, Sainsbury and potentially Asda (plus private equity) would be interested in the 750+ 7,000 sq ft stores and we should also remember that Malcolm Walker offered GBP1bn for the equity in October 2010. We also believe Malcolm has the right to match any bid given he has 26% of the equity or could create a blocking stake if he bought the 7% Glitnir stake.
"There are many factors to consider apart from the actual bid value. Any acquirer would have to factor in conversion costs (GBP0.5m per store), regulators (the Office of Fair Trading or the Competition Commission could force disposals - Morrisons should refer it to CC we believe), the supply contracts on frozen food and own label - and the current management's equity stake. We should assume that Morrisons want the majority of stores and a change of brand name while Malcolm might want to keep the Iceland name. However Morrisons has not sold the Safeway name and we could assume whoever acquires Iceland would also keep the name off the High Street."
Clive Black, Shore Capital
"The rationale for Morrisons to look at Iceland is clear to our minds. Morrison lacks the format diversity of Sainsbury and Tesco with no presence in the convenience or hypermarket 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.
"Morrisons and Asda most critically face this challenge and in the absence of internal capabilities or time, acquisition is now the preferred route for growth. That said, through the acquisition of The Co-operative Group, Netto and Somerfield stores, both Asda and Morrisons have been moving into smaller-sized units for some time now.
"We believe that Asda has a reasonable amount on at present with the integration of the 147 stores acquired from Netto. However, like the buses, opportunities rarely come at the ideal time. Indeed, Asda probably has greater need than Morrisons to acquire smaller stores with its relative dearth of such outlets and corresponding dependence upon 40,000 sq ft units and above. Therefore, there could be an interesting auction in the offing - Morrisons may have competition.
"Beyond Asda and Morrisons, we also believe that all of the other players will be having a good look at the Iceland estate at present. And when we say 'all' we mean 'all', from Aldi to Waitrose. Sainsbury's and Tesco are not like to be lead players in the bidding process to our minds, although such an assertion may yet be tested, but they will be interested in specific stores in our view. Private equity also seems to be casting an eye over Iceland, although the track record of private equity in the sector is far from glorious."
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