Baugur was forced to file for protection from its creditors under the Icelandic equivalent of Chapter 11 bankruptcy – as exclusively revealed by Retail Week online on Wednesday – after negotiations with failed Icelandic bank Landsbanki over debt restructuring failed.
It followed a move by Landsbanki, one of Baugur’s funders, to file a petition to place a Baugur subsidiary, which owns stakes in House of Fraser, Hamleys, Aurum and Iceland, into administration.
Landsbanki appointed PricewaterhouseCoopers on Wednesday to take control of key Baugur subsidiary BG Holdings. It is understood that the administration hearing will take place in the High Court in London today.
Landsbanki said discussions with Baugur “did not produce any acceptable proposals so we have taken steps to protect these valuable assets”. Baugur will enter the moratorium process, enabling independent accountants and lawyers to evaluate the group’s assets over a three-week period.
The period can be extended if required but it will almost certainly end in the demise of one of the most prolific retail investors of recent years.
“It is inevitable that Baugur will go into administration,” said one source close to the investor.
Pali analyst Nick Bubb said: “People always knew that Baugur was a house of cards that would collapse.”
Sources told Retail Week that the decision formalises the situation that has been ongoing since administrators were appointed to Icelandic banks including Kaupthing, Glitnir and Landsbanki in October.
Baugur-backed retail chiefs acted quickly to distance themselves from Baugur and insist it was business as usual.
House of Fraser chairman and Baugur shareholder Don McCarthy told Retail Week that the development would not affect the department store chain. “It crystallises the situation and it is now about bringing clarity to the situation for the individual companies going forward,” he said.
It is understood that the management of House of Fraser, which between them control about 17 per cent of the retailer, could buy back Baugur’s stake in the business.
Mosaic was similarly quick to distance itself from Baugur, emphasising that the investor, which has a 49 per cent in Mosaic, is a minority stakeholder.
Kaupthing, which holds the debt in Mosaic, is understood to be keen to back Mosaic as a viable fashion business and realise assets at a later date.
However, developments this week could open doors to potential changes of ownership with equity up for play as well as debt.
One Baugur-backed retail chief said: “The dam has broken. This situation has been in play for months.” However, he stressed that Baugur’s latest difficulties meant little more than a change in shareholding and control of the retail assets.
Baugur also has stakes in retailers including Jane Norman and Whistles, as well as public holdings in Debenhams and French Connection.