Londis unimpressed by Nisa merger proposal

Related tags Londis

Nisa-Today's, the independent UK convenience store
group, has proposed a merger with larger counterpart Londis, the much
coveted symbol group. But Londis' reaction has been reserved, to
say the least.

Since Irish retail group Musgrave announced a bid for the UK's largest independent store group back in December, Londis has been at the centre of an increasingly wide circle of suitors, led by Iceland owner, the Big Food Group.

Nisa-Today's name had already been linked to Londis, but the company said this week that it was not prepared to get into a bidding war for the chain.

Instead, it proposed a merger between the two groups, which it said would create a £2 billion company with sufficient clout to defend its interests against the big guns entering the convenience store arena - notably Tesco and Sainsbury.

Moreover, the company's chairman Dudley Ramsden suggested that if Londis retailers were unhappy with the results of a merger with Nisa-Today's the group would redeem the shares at their net asset value - essentially offering Londis retailers a no-lose situation.

But that is not how the offer appears to have been perceived at Londis. Nisa-Today's is a much smaller group than Londis, and it stands to gain more from the merger than its partner would, and while combining the two groups would allow them to maintain their independent and mutual status, it would bring little to Londis retailers that they do not already have.

Nisa-Today's merger deal would value Londis at around £29 million - well short of the £40 million or so offered by both Musgrave and BFG - and as such has already been rebuffed by the management of the company, prompting Ramsden to make a direct approach to Londis shareholders - a move which echoes that by BFG's Bill Grimsey back in December.

What is puzzling is the oblique way in which the offer has been made. Londis has appointed KPMG to assess all the offers - and to look at other possibilities for the future - and while Nisa-Today's has held talks with KPMG, sending an open letter to shareholders does little to support its credentials as a serious bidder.

Deciding on the future of Londis is likely to be a lengthy procedure, with two distinct camps within the company. Many of the symbol group's store owners want to remain independent and mutual, either maintaining the status quo or accepting an offer from Nisa-Today's or Musgrave, which operate along much the same lines.

But a significant number of others are keen to sell out to the major multiples, not least because this would undoubtedly allow them to put a bigger figure on the price tag - as much as £50-60 million, according to some reports.

With Tesco last week acquiring the Adminstore group - which operates the Cullens stores in London, among others - for more than £50 million, a group the size of Londis (it has nearly 2,000 outlets) could certainly expect to be sold for more, although the independent nature of the business could prove the sticking point.

Would Tesco and/or Sainsbury, the two multiples leading the move into the convenience store sector, really be willing to carry on supplying independent stores trading under their names? Almost certainly not. So, would the independent Londis store owners be happy to sell their outlets to one of the larger groups in exchange for a greater cash pile? Some would, but many would not, making any potential takeover fraught with complications.

All of which means that BFG and Musgrave are perhaps still the most likely contenders to buy the group. Both have their own convenience stores (Musgrave owns the Budgens chain in the UK) but both also operate as wholesale suppliers to independent retailers, and seem quite happy to maintain this balance.

In any case, KPMG is now said to have talked with all the interested parties, and will put its recommendations to the Londis management soon. But the same management had also accepted Musgrave's initial offer for the group only to find itself forced to back down amid shareholder dissatisfaction, so any chance of a rapid decision is remote indeed.

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