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LBO Shops Hungry for Iceland Foods

(Reuters) – At least five private equity firms are set to submit first-round non-binding offers for a 77 percent stake in British frozen food retailer Iceland Foods by Wednesday’s deadline, four people familiar with the matter said.

Iceland Foods’ CEO and key investor Malcolm Walker is thinking about bidding for the company later in the process, with backing from pensions funds and sovereign wealth, three of the people said.
Analysts expect a winning offer to value Iceland at 1.3 billion to 1.5 billion pounds.

BC Partners, Cinven, Blackstone, TPG and Bain will square up against supermarket groups Asda, owned by retail giant Wal-Mart, and Wm Morrison, the people said.

The retailers are also expected to bid for the full stake, but would have to sell off some of the stores to satisfy competition authorities.

Walker, who founded Iceland back in 1970 and has a 23 percent stake along with other managers, wants to buy all the company and to make his own bid, the three people said.

Walker has a tactical advantage over his rivals because he has the right to match any offer for Iceland.

Landsbanki’s resolution committee will decide if the offers represent enough value for the auction to move into a second round once all the bids are in.

Walker, whose 1 billion pound offer for Iceland was rejected last year, could bid even if all the first round offers are rejected, but there is no guarantee that he will reach the vendors’ price expectations either.

He has been putting together his and wants majority control of the bidding vehicle that will be established for his offer, which means he is unlikely to join forces with the private equity firms when he shows his hand, they said.

“There are only two real outcomes here,” said one of the people. “Either a grocery retailer buys it and does a deal to dispose of some stores, or Walker buys it with passive investors like pension funds.”

Pension and sovereign wealth funds are traditionally passive investors compared to buyout houses that usually want majority control and see themselves as hands-on managers of the businesses that they buy.

Creditors of collapsed Icelandic banks Landsbanki and Glitnir gained control of their 67 percent and 10 percent stakes in Iceland after the demise of investment group Baugur and are now looking to maximize value through a sale.

(By Victoria Howley and Simon Meads; additional reporting by Mark Potter; editing by Elaine Hardcastle)