Shopping for Somerfield

Somerfield, the UK supermarket chain, is this week expected to recommend one of the two £1bn-plus takeover offers that it has received. The first offer, valued at 205p a share, is from property investor Robert Tchenguiz and buyout firm Apax Partners. The second is for upwards of 190p a share from Ian and Richard Livingstone, the brothers behind London & Regional Properties.

Both unsolicited bids came after an earlier offer from Baugur, the Icelandic investment group, was rejected by the board. Baugur offered £1bn for Somerfield, subject to conditions including agreement with pension plan trustees. It is keen to merge Big Food Chain, which it bought recently from Iceland, with the Somerfield group, in which it already has a 5% stake.

Baugur said last month that it was considering another bid for Somerfield, with reports suggesting it might team up with Scottish entrepreneur Tom Hunter. Shares in Somerfield soared to a five-year high of 207.6p on March 24, giving it a market capitalisation of £1.13bn. This compares with 157.25p at the start of the year.

Somerfield is no stranger to suitors. It rejected a £594m bid from retail entrepreneurs John Lovering and Bob Mackenzie in 2003. Its value has increased since then, with performance improvements stemming from a repositioning of the chain in the convenience food sector. Somerfield recently warned of difficult trading conditions in the retail sector, though, echoing earlier sentiments from other retailers.

Barclays Capital is understood to be providing financing for the Apax bid. Nomura is supporting the Livingstone bid. Somerfield’s real estate and cashflow make it an attractive takeover target, according to analysts. The retailer had property with a net book value of £543.3m as of April 24.