Morrisons and Asda have been touted as potential bidders for Iceland

Morrisons and Asda have been touted as potential bidders for Iceland

Asda and Morrisons could emerge as rival bidders for UK frozen-food retailer Iceland Foods, according to a leading retail analyst.

Last week, failed Icelandic bank Landsbanki gave the go ahead for the sale of its 67% stake in Iceland Foods.

The Sunday Times newspaper yesterday (22 May) said that Morrisons was preparing a GBP1.5bn bid for the frozen food chain.

However, Shore Capital analyst Clive Black suggested that Asda might also consider a bid, arguing that it "probably has greater need that Morrisons to acquire smaller stores".

Asda is in the middle of integrating the UK operations of discount chain Netto after acquiring the stores from Denmark-based Dansk Supermarked last year.

The deal gave Asda a clutch of stores smaller than its larger supermarket and hypermarket outlets.

Nevertheless, Black claimed Asda still had a "relative dearth" of smaller stores and had "dependence" upon outlets of 40,000 sq ft and above.

He said: "There could be an interesting auction in the offing - Morrisons may have competition."

Iceland Foods' stores estate would "solve a strategic challenge" for a two- or three-year period for Asda and Morrisons, Black argued.

An acquisition of Iceland Foods would provide Asda and Morrisons - the UK's number two and four grocers respectively - with expansion in a  "concentrated and low growth market", he said.

"[The UK is] a market that is also currently at a nadir of activity with living standards in the UK falling at a robust rate at present," Black explained.

He suggested that such a move by either Morrisons or Asda would give either of them the "format diversity" they lack, compared to rivals Sainsbury's and Tesco, which also offer hypermarkets and convenience stores.

"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."

Black suggested that Iceland would be worth GBP1.4-1.6bn, and that, for Morrisons, the acquisition would require "reappraisal of its investment and financing plans" and would be likely to include the suspension of its GBP1bn share buy-back programme to pay for the acquistion.

Morrisons declined to comment.