Interesting things about Baugur

This article is by Paul Nathan

baugur

The eponymous song from The Who should be playing aloud in government offices as they burn the midnight oil, and ponder over a deal to restructure Baugur.

As Jón Ásgeir built up a debt mountain for Baugur, and now every citizen of Iceland, he sold all the core Icelandic food assets back to Hagar, and into the safe hands of his family, and therefore managed to insulate them from the ensuing Baugur wreckage.

Since the fall of the Banks and Baugur, he has sold £6.7m of shares back to his friend Sir Philip Green, and failed to account with what he did with the proceeds.

Most of what Baugur bought were non-food retail assets, which many analysts at the time thought were overpaid for.  Now that the retail market is a bloodbath, those assets have crumbled in value and viability, after one of the worst shopping years on record.

Woolworths – which Baugur had a 10% stake in – has gone bankrupt, writing off some £50m, and Whittards, which Baugur paid £25m for, was recently sold for less than £1m.

And the next chapter:

Baugur still owes at least £1bn – some say it is in excess of £2bn – to the Icelandic taxpayer and now the government seems to have decided, with the help of advisers, what to do next.

Much of the conventional wisdom is that things are so bad, that to sell anything now is a ‘fire sale’ and it is better to wait until things improve?  So the government is now seriously considering swapping its loans for stakes – or shareholdings – in the Baugur companies, and waiting until the value of these holdings gradually improve.

Unfortunately there is one massive flaw in this, as it could leave Jón Ásgeir and his cohorts still running the Baugur portfolio.  Moving things around to their advantage, and then ‘dumping’ the parts that have no hope of revival.

By no coincidence Jón Ásgeir installed himself as Chairman – he is banned from assuming any directorships in Iceland – of Iceland Foods.  Whilst Baugur is unwilling to reveal how badly the rest of their business is performing, it is well known that the chain of discount frozen food stores is doing well under the leadership of its founder Malcolm Walker.

The worst case scenario for the Icelandic people is that Jón Ásgeir manages to get a larger share of Iceland Foods – the jewel in his portfolio – and the government is persuaded to take a larger holding of the distressed retail assets in clothing etc.

It would be a disaster for the nation, if it ended up with more lame ducks, whilst Jón Ásgeir held on to the one part that is almost sure to show a growth in value.

Paul Nathan
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