By and  on February 4, 2009

LONDON — Baugur Group, the aggressive Icelandic retail investor once tipped as a bidder for Saks Fifth Avenue, is rapidly unraveling.

On Wednesday, the company said it has requested a “moratorium process” from the district court in Reykjavik, which is similar to Chapter 11 bankruptcy protection.

Baugur — which holds minority stakes in companies including Saks Fifth Avenue, Matthew Williamson, French Connection and the British department store chain House of Fraser — said talks with Icelandic banks about restructuring its 1 billion pounds, or $1.43 billion, in debt broke down Tuesday. All figures have been calculated at current exchange.

The company declined further comment, although Baugur is now understood to have three weeks to off-load or restructure the debt.

Meanwhile, the major companies in Baugur’s once-packed portfolio tried to distance themselves from the troubled investor, which for the past 10 years had been on an unprecedented buying spree in Britain.

“During these difficult times, it is important to clarify the independence of House of Fraser and to emphasize that Baugur is a minority shareholder and has no impact on the strength of the business or its day-to-day operations,” said Don McCarthy, chairman of House of Fraser.

Mosaic Fashions, another of Baugur’s investments which owns such names as Karen Millen, Coast, Oasis, Principles and Warehouse, said Baugur’s woes would “in no way affect the future strength” of the group. Although Mosaic said its own discussions with Iceland’s Kaupthing Bank were “progressing satisfactorily,” the company is widely reported to be looking for a buyer.

Both French Connection and the Danish fashion house Day Birger et Mikkelsen, another of Baugur’s investments, said the announcement would have no impact on their businesses.

Jane Shepherdson, chief executive officer of Whistles and a shareholder in the business, said, “It’s terribly sad what’s happened to Baugur, but it won’t make a material difference to the business. Baugur are a 20 percent shareholder in Whistles; at this stage we don’t know where those shares are going, but it’s a small enough percentage not to make an impact. We’re not overly concerned.”

Shepherdson added that Whistles’ stores and business are operating as normal. However, earlier this week it revealed a new financing agreement, with gearing reduced to 25 percent.

Retailers and industry observers said that if Baugur disappears, its companies will most likely survive.

Nick Bubb, retail analyst at Pali International in London, said the Icelandic banks that hold Baugur’s debt will likely “limp along” and eventually sell the assets to private equity.

So far, the only private equity company to express interest has been the British firm Alchemy, which focuses on midmarket companies. But Nick Hood, a partner at the insolvency firm Begbies Traynor, said there is a lot of positive buzz among investors who have been waiting for the Baugur assets to come onto the market. “Most of these Baugur businesses are sound, and their sale could signal a bright new future for the U.K. high street,” he said.

The question remains whether retail tycoon and Topshop owner Philip Green will return to the bidding table. Last fall, a few weeks after the credit crisis thundered into Britain, Baugur called in Green, hoping he could take over some of its fashion companies. He was never able to strike, however, because Iceland’s banks decided to hang on to Baugur’s debt and restructure the company themselves.

On Wednesday, Baugur’s executive chairman, Jón Asgeir Jóhannesson, told the Icelandic news Web site “I’m sure that Philip Green is dancing a war dance in his living room, because now he will become a large owner of our companies for virtually nothing.”

Green told WWD he is simply watching and waiting. “Nobody has offered me anything,” he said. “And if something is offered, then we’ll take a look at it. We look at potential acquisitions all the time.”

One industry insider said Baugur should become a case study at Harvard Business School.

“Their whole debt-fueled acquisitions drive was lunacy — an example of what not to do,” the source said. “Iceland as a whole has been a casino for the past decade, and Baugur was gambling right along with it.”

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