Woolworths break-up wide of the mark

Shares in Woolworths, the high street retailer, gained more than 3 per cent this morning following a report that Baugur, the acquisitive Icelandic investment group, was planning a takeover bid followed by a possible break-up of the group.

However, it is understood that Baugur, which already holds a 10 per cent stake in Woolworths, has no imminent plans to launch an offer for Woolworths, which closed last night with a market value of just under £500 million.

It also has no current plans to push for a break-up of Woolworths, led since 2002 by chief executive Trevor-Bish Jones.

Baugur declined to comment on this morning's newspaper report, which it said was "pure speculation".

The shares put on 1.25p to 35.5p after it was claimed that Baugur wanted to sell off many of Woolworths 800 stores in UK towns and cities. It was also reported that it might spin off the joint venture with the BBC that produces DVDs of popular television series.

Its CD, DVD and book distribution business was said to be included in the break-up plan as well.

It is known that, as a significant shareholder, Baugur has held meetings with management at Woolworths in recent months. However, it is also known that the Icelandic firm has not pushed for a break-up of the retailer.

Leading retail analysts were sceptical about the imminence of a Baugur bid, suggesting it was already preoccupied with its £350 million takeover for House of Fraser, the department stores, launched recently.

Richard Ratner at Seymour Pierce said: "While we believe that it has not been happy with the performance of its 10 per cent holding - and, with its 'friends', we that the combined holdings are considerably higher than this - we would be surprised if an 'offer' was imminent."

Two months ago Baugur consolidated its holding in Woolworths via an alliance with with fellow Icelandic investor FL Group and Kevin Stanford, the retail entrepreneur.

Mr Ratner added: "While 'amicable discussions' are going on between Baugur and Woolworths, they might turn nastier if [the second half] doesn't show any improvement. Even in this instance, we would expect something other than a full 'offer'."

Mr Bish-Jones has been trying to stem falling sales at Woolworths in the face of stiff competition from supermarkets and bulk edge-of-town shopping outlets. As part of a bid to decrease Woolworths' reliance on the Christmas trading period, Mr Bish-Jones has put his faith in a concentrated internet strategy for the retailer.

A bid for Woolworths by Baugur would not have come as a particular surprise. Baugur owns a host of other retailers in the UK, including Iceland, the frozen food specialist supermarkets, Hamleys toy stores and fashion retailers Oasis, Principles and Karen Millen.