Londis board plumps for Musgrave - again

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The board of leading UK symbol group Londis has decided for the
second time in six months to recommend a takeover bid from
Ireland's Musgrave, owner of the Budgens convenience store chain.
Although Musgrave's bid was not the highest, it was the one
considered to offer the best value to shareholders - a suggestion
likely to be challenged by rival Big Food Group.

Musgrave first made a bid for Londis at the end of 2003, offering to pay £40 million for the group owned by nearly 2,000 independent retailers, but with some £20 million of that total going to just four Londis directors, not surprisingly the Irish chain saw its offer rejected. At the same time, the Big Food Group, which owns the Iceland chain, made a similar offer, this time guaranteeing that the lion's share of the cash would be distributed to shareholders and not the board members.

Londis then decided to call in corporate finance specialists KPMG to assess its options, and early last month decided to begin the formal process of seeking a buyer, despite opposition from a small but vociferous minority of shareholders, who believed that Londis should retain its independence.

Although BFG was widely seen as the most likely candidate to acquire the Londis business, which it wanted to merge with its own burgeoning symbol business Premier, the company never in fact made a formal offer for the chain, complaining that the lack of up-to-date financial information released by Londis made it impossible to assess the true value of the business.

It also objected to a condition imposed by KPMG and Londis which prevented it from signing up Londis retailers to its Premier fascia for at least a year, a condition which it labelled "anti-competitive"​.

The Londis board did not say which other companies had made formal offers, although both the Co-op and Somerfield are thought to have made bids and other symbol groups such as Nisa-Today's and Costcutter had also expressed an interest. But it did say that the Musgrave offer of £60 million was not the highest on the table.

"The board took account of shareholders' concerns that price should not be the overriding factor and that building a sound long term future for the independent retail sector in the UK should be a key consideration for Londis,"​ the company's directors said in a statement yesterday.

"Musgrave's price was not the highest tabled, but the combination of price offered and strategic and trading elements commended the proposition to us. Londis shareholders will also benefit from a substantial cash payment: a Londis shareholder will now receive £31,266 in cash for each Londis share, rather than £10,139 [under the original Musgrave offer], more than three times as much."

Eoin McGettigan, executive chairman of Musgrave UK, said he was pleased that Londis's board had once again recommended his company's offer: "We always knew that we could provide a strong and attractive strategic partnership to Londis shareholders.

"Musgrave has a profound commitment to the independent grocery retail sector. Our 128 year heritage of working with independent retailers gives us a level of expertise and know-how which is unique in British retailing. Our aim always is to provide total support to the retailers giving them the opportunity to grow their stores and serve their communities."

He added that Musgrave would retain the Londis brand for the foreseeable future. Musgrave is also planning to switch all its Budgens outlets in the UK to the Londis business model - i.e. independent franchised stores rather than company-owned outlets - by 2007, a move which some observers believe could help it convince Londis store owners of the benefits of its deal. At present, Budgens operates just 60 franchised stores in the UK, with some 172 wholly-owned outlets.

"Our store portfolio has performed very strongly over recent years, but we believe the stores will perform even better for our customers and be more responsive to the communities they serve if owned and operated by independent franchise holders,"​ said McGettigan, good news for Londis dissenters keen to retain their independence.

But while both the Londis and Musgrave boards are clearly confident that the deal will be supported by shareholders, this may not be the end of the affair. BFG responded immediately yesterday to the merger announcement, saying that it was still very interested in the business.

"Despite making its strategic case as a potential acquirer and seeking to engage the board of Londis in discussions, BFG has not participated in the process run by KPMG, because of the anti-competitive constraints Londis and KPMG sought to impose as a pre-condition to participation [which would have prevented the company from signing up Londis retailers to the Premier chain for a year]. BFG has not therefore submitted an offer for Londis,"​ the company said in a statement.

"The board of BFG remains interested in the possible acquisition of Londis and will continue to consider its options in relation to the company. In the meantime, BFG awaits the publication of more meaningful financial information on Londis."

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