Musgrave looked poised to buy Londis UK for more than €90 million last night after the mutually-owned retail chain's board recommended the Irish company's offer to shareholders.
The board of Londis Holdings wrote to the group's 1,900 shopkeeper shareholders on Monday recommending Musgrave's £60 million sterling (€90.3 million) offer for the group.
The Cork-based distributor and retail franchiser saw off bids from two other shortlisted competitors, the Co-op and off-licence chain, Threshers. Londis Holdings' adviser, KPMG Corporate Finance, is known to have spoken to 10 potential buyers during the last four months.
Musgrave will pay £20 million more for Londis than it offered late last year. Its chief executive, Mr Séamus Scally, yesterday acknowledged that the group was paying a "very, very full price" for the UK chain.
"You have to remember that a bit of time has elapsed since last year, and further to that, they had a very strong year in 2003," he said. "This was an auction process, you have to bear that in mind as well."
Londis's retail turnover topped £1 billion, while its wholesale revenues were £500 million. It is believed that the wholesale business, which Musgrave will take over, generated operating profits of £7.5 million, compared to £4 million in 2002.
In the letter to its shareholders, the Londis Holdings board points out that while Musgrave's bid was not the highest, "the combination of price offered and strategic and trading elements commended the proposition to us".
Londis has 1,919 shareholders. Under the terms of Musgrave's offer, they will each get £31,266 in cash, payable in two instalments of £15,633, the first on acceptance and the second 12 months later, once they have maintained their trading account with the group.
They will be given the opportunity to vote on whether to accept the offer at an extraordinary general meeting. That will take place in four to five weeks.
If they accept the offer, the shopkeepers will maintain ownership of their businesses, and operate as franchisees of the wholesale operation. Musgrave will own that, its three warehouses and the brand. It will supply the retailers with grocery and fresh products.
Mr Scally said yesterday that the Irish group intended to grow the business both organically and through creating additional franchises.
If the deal goes through, it will give Musgrave's a UK operation with retail sales of more than £2 billion.
It already owns convenience store chain, Budgens, which has 232 outlets. The addition of Londis will make Musgrave owner of the biggest independent retail franchise operation in the UK, with more than 5 per cent of the market.
A controversy over special payments to Londis directors derailed Musgrave's original £40 million bid last December. Under those terms, its four directors would have shared half that amount, while shareholders would have received little over £10,000 each.
This was based on an existing agreement between the shareholders. The four of them, including chief executive Mr Graham White, subsequently waived their rights under this agreement on foot of special payments totalling £2 million.
