Weekend rumours: Morrisons to raid Iceland!

Thats the store not the country although it is the Icelandics who are selling their 67% stake.


Morrisons @ 298.3p,-10 (-3.24%)


Not much enthusiasm for Morrisons today albeit on a bad day for the FTSE100. 
Probably more to do with market falls rather than the weekend news that the company is mulling over a possible £1.5bn bid for Iceland which, makes it difficult to see how the market views the news.


The group has 750 stores and 22,000 employees, and last year made profits of £184.3m on £2.2bn of sales.


The founder and former CEO of Iceland, Malcolm Walker also retains a 26 percent stake and is thought to be planning a bid of his own as the current 67% owners, Lanbanski, seek to raise funds.

There is also the possibility of a management buy-out as the chain's existing management will have the option to match any offer.


Its early days yet but I have read comments like:

- aggressive move by the new CEO Dalton Philips to increase the company's 12 percent market share.
- expanding beyond Yorkshire roots (strange I thought that eating the elephant that was Safeways achieved that?)
- it being a means to accelerate its smaller format roll-out.


A few worries for me which centre on another "bold" bid by Morrisons to increase market share. The last one took years to absorb and destroyed the reputation of "Master grocer" Sir Ken Morrison. 
I also wonder how much of that learning experience has been retained? The last CEO, Marc Bolland, was given plenty of credit for finally turning it around (right place, right time perhaps) but his replacement, Dalton Philips has only been in place for "5 minutes".


The risks need to be properly considered for me. 
I understand the opportunity to cross sell, or even cherry pick the best sites, but I would suggest that Iceland has its own distinct customer base (do Morrison's understand them?), and then there is the problem of integrating 2 distinct supply chains.
Morrison's has only recently announced its plan to trial a convenience store format with its preliminary results (Morrison's Preliminary Results: "Different and Better than Ever"?) which, to me, seemed quite a prudent approach when you are late to the party so to be now considering such a big splash would seem to reckless to me.


I know that there is always pressure (sometimes self imposed), to make an impression and justify your appointment but I also think that many of Morrison's long term shareholders would be grateful for some stability and organic growth (in the Safeway portfolio) based upon Morrison's "traditional" values particularly given the unforeseen roller coaster of the last few years and the loss of 2 CEO's in that time.
The company should already have plenty on its plate with its recent acquisitions and declared plans to create an online offering. 
I appreciate that this is a on a smaller scale to Safeway's but, will they now stretch resources further and risk destroying shareholder value again?


Finally, and most striking for me, it again calls into question the £1bn share buyback announced in the preliminary results. 
With just £245m on its books, will Morrison's now turn around and call on shareholders with a rights issue? or increase its moderate gearing of 20% with more borrowings?
Different circumstances but a rights issue would call to mind RBS announcing increased profits; upping its dividend; and then asking for the cash back with a rights issue!


To date, Morrison's have declined to comment on the speculation.


For me, I am hoping that it is a rumour (with little basis) being put around by deal makers fishing to find a buyer for Landbanski by appealing to vanity.


Fingers crossed.


Related Articles:
- www.guardian.co.uk: Morrisons weighing up takeover bid for frozen foods chain Iceland
- scotsman.com: Morrisons 'eyes up bid for Iceland chain'
- www.dailymail.co.uk: Iceland bid in southern expansion push


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- Morrison's Preliminary Results: "Different and Better than Ever"?
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