Fears loom over chain store backer BaugurIcelandic investor Baugur backs many big names

05 February 2009

High street shopping

Always check shops' returns policies when buying goods

A major shake-up on the UK high street loomed today as doubts grew over the future of Icelandic retail investor Baugur.

Baugur, which owns stakes in a raft of UK retailers such as Hamleys and House of Fraser, is to seek protection from creditors after talks failed with Icelandic bank Landsbanki over restructuring its £1bn debt burden.

The woes of the firm are likely to trigger a fire-sale of its UK retail assets as it desperately attempts to raise cash.

Weak sales on UK high street

It is exposed to a weakening UK high street and its problems were compounded by the crisis which saw the nationalisation of Iceland's major banks last October.

Private equity firms such as Alchemy are said to be interested in parts of Baugur's empire assets, while BHS and Topshop billionaire Sir Philip Green could also enter the fray.

Retail expert Nick Bubb, an analyst at Pali International, said large swathes of the high street may change hands as Baugur is forced to stump up cash to repay its debts.

'Baugur has no choice - it has to repay the banks and they are driving it,' he said.

'There should be enough interest in most of its chains to attract buyers, perhaps from private equity firms,' he added.

Baugur applies for protection

Baugur has applied to enter the "moratorium" process in Reykjavik - which offers protection in a similar fashion to Chapter 11 bankruptcy procedures in the US.

Landsbanki also yesterday filed a petition to place BG Holding - which owns its UK assets - into administration under PriceWaterhouseCoopers.

Baugur has majority stakes in fashion chain Whistles and toy store Hamleys as well as minority shares in a host of others. It owns 34% of House of Fraser, 14% of Iceland and 36% of fashion label All Saints.

The firm's interests also include other names including Coast, Karen Millen, Oasis, Principles, Warehouse and Shoe Studio through a 49% stake in operating company Mosaic Fashions.

It also holds equity stakes in listed retailers including French Connection, Moss Bros and department store chain Debenhams.

To find out how Which? members rated these shops see the Which? high street shops survey.

Baugur 'protecting interests'

Baugur said it had taken the action 'in order to protect the group's assets as well as the interests of all creditors'.

A Landsbanki spokesman said: 'Our discussions with the Baugur Group did not produce any acceptable proposals, so we have taken steps to protect these valuable assets.

'We intend to work with management of the companies to maximise the long-term value for all stakeholders.'

Baugur invests in companies which employ around 50,000 UK staff but many firms in which it invests were quick to stress that day-to-day business would be unaffected despite possible stake sales.

House of Fraser says it will have no impact on the strength of the business

House of Fraser said the board sympathised with Baugur's plight, but added that the firm was a minority shareholder 'with no impact on the strength of the business, or its day-to-day operations'.

Don McCarthy, chairman of House of Fraser, said: 'This is sad news. However, we can only continue to emphasise that the difficulties that Baugur faces do not affect House of Fraser's trading or banking position. It is business as usual.'

A spokeswoman for Mosaic Fashions said Baugur's move 'will in no way affect the future strength of the group or the operations of the business'.

Mosaic Fashions is funded by fellow Icelandic bank Kaupthing. Discussions over long-term funding from Kaupthing are 'progressing satisfactorily', the company added.

Mappin & Webb

Later jewellery firm Aurum Holdings, which includes the Goldsmiths, Mappin & Webb and Watches of Switzerland brands, moved to stress its independence from Baugur.

Chairman Don McCarthy said: 'Baugur is a shareholder and has no impact on the strength of the business, or its day-to-day operations.

'Today's announcement is disappointing news. However we can only continue to stress that the difficulties that Baugur are facing do not affect Aurum's trading or banking position.'

Aurum has hired Ernst & Young to review and 'look for opportunities to strengthen' its business.

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