Baugur joins Apax Somerfield consortium

The acquisitive Icelandic group will team up with a consortium comprising Apax Partners, Barclays Capital and Robert Tchenguiz to put together a £1.1bn offer for UK supermarket chain Somerfield.

The consortium comprising global buyout house Apax Partners, Barclays Capital and UK property tycoon Robert Tchenguiz has joined forces with Icelandic  investment group Baugur to coordinate a bid for Somerfield.

The UK supermarket chain is expected to attract an offer of around £1.1 billion (€1.6 billion; $2.1 billion) from the group – around the same level as the 205 pence per share proposal tabled two weeks ago, despite the addition of Baugur.

The consortium, which is in talks with Somerfield management about a recommended cash offer, said in a statement that the talks were at a “very early stage” and that any deal would be subject to due diligence.

The consortium also said in the statement: “We believe that the members of the consortium provide considerable operational and financial skills together with substantial experience in the sector.”

The addition of Baugur to the group will add to the consortium’s operational heft and may also lead to potential retail synergies should the deal go through. Baugur recently acquired the UK’s Big Food Group, owner of the Iceland retail chain.

Baugur also controls a number of other UK retailers including London toy store Hamleys, the Karen Millen, Oasis, and Whistles fashion chains, Goldsmiths jewellery stores, and Julian Graves health food stores.

Following recent record highs in the share price of Somerfield based on competing bids for the retailer, news of Baugur joining the consortium caused the price to fall yesterday to 209.8 pence yesterday.

The consortium is being advised by Citigroup and Lehman Brothers.

Somerfield, which is being advised by Dresdner Kleinwort Wasserstein, Deutsche Bank and lawyers Dickson Minto will no doubt be looking closely at the financial terms of any offer from the consortium.

The company itself was infelicitously born out of a complicated £2.1 billion leveraged buyout that went wrong. Formerly known as Gateway, the retailer was taken over by private equity-backed holding company Isosceles in 1989.

Following the UK recession, the retailer ran into significant cash flow problems and a messy rescue effort involving three separate restructurings was launched. Eventually, in 1994, Somerfield, the successor entity to Gateway was floated on the London Stock Exchange.