Icelander's Arcadia property plan

THE long-awaited bid for Britain's second-largest retailer Arcadia by Icelandic food and drink group Baugur could be partly funded by a sale and leaseback of scores of its freehold and long leasehold shops.

Such a sale could raise £300m for the Icelanders, and three potential property purchasers have been lined up to take over the shops.

All the shops, about 100 of which are freehold, will continue trading. Arcadia's £180m flagship building in London's Oxford Street will be included in the sale, but the company's 1,800 leased, stand alone and concessionary shops will not.

Baugur's £500m bid was first mooted last October and a formal offer is thought to be imminent. Baugur has built up a 20% equity stake in the chain, which includes Dorothy Perkins, Burton, Evans, Top Shop and Miss Selfridge. It also has Nike Town store, with Topshop and Topman also trading within the building. This was previously jointly owned by Gerald Ronson's Heron International.

Three groups are said by trade magazine Property Week to be interested in buying the properties - Royal Bank of Scotland, Heron International and property outfit London & Regional. Baugur's financial adviser Deutsche Bank has had talks with the potential purchasers.

Last October Baugur indicated that it would make a bid of between 280p and 300p, worth more than £500m. Arcadia shares are currently trading at about 270p. If the deal goes through Arcadia's chief executive Stuart Rose, who took over in November 2000, would stand to make £16m from it.

Two weeks ago he reported a strong trading performance from Arcadia, which prompted analysts to increase their forecasts for full-year pre-tax profits from £70m to between £75m and £85m.

Although Baugur is a smaller company than Arcadia, the British fashion retailer has made no formal objection to a bid. However, after the recent trading statement the Icelanders may have to pay more than 300p a share for Arcadia. Talk in the market is that it is holding out for 330p.

Since Rose took over, Arcadia has closed 450 stores and arranged management buyouts of four offshoots - Hawkshead, Principles, Racing Green and Warehouse. Chairman Adam Broadbent told shareholders at the annual meeting last week that he had urged Baugur 'to get on with it'.