Icelanders Make £170m Raid on Marks & Spencer

An Icelandic investment group is understood to be building a stake in Marks & Spencer. It is expected to announce in the coming days that it has spent some £170m buying more than 3% of the company.

Marks & Spencer shares climbed 5.75p to 346.75p yesterday as 13m shares changed hands. The shares were the FTSE 100's third-biggest riser and are at their highest level since late April.

Traders say that the stake-building started on Monday last week. The daily turnover throughout last week was 12m to 15m shares, double the levels of the previous week. The stake-building comes 12 months after Stuart Rose, the chief executive, was parachuted into M&S to turn the ailing retailer around and see off an audacious proposed bid from the entrepreneur Philip Green, who claimed he was ready to pay 400p a share, or £9bn, for M&S, but walked away in the face of boardroom opposition.

In recent weeks the shares have hit their lowest level since the bid, falling to 320p as investors realised the seriousness of the retail downturn.

Marks & Spencer's core women's fashion sales are said to have been particularly badly hit, with reports suggesting that sales in some weeks have been down by 20% on last year's levels.

Mr Rose has so far been able to blame M&S's problems on the mistakes of his predecessors but he has promised to produce signs of improvement in sales by this Christmas.

The stake-building is therefore likely to be welcomed by Mr Rose, who is under increasing pressure to demonstrate how and when he might get the chain's share price above the 400p level proposed by Mr Green last year.

Last night a spokesman for M&S said that the company was not aware of any stake-building but added that M&S was exactly the sort of company that could attract a strategic investor: "The shares are undervalued and the company has a high turnover."

Over the past two years a number of Icelandic investment houses have emerged, targeting British businesses on the grounds that they offer special "value for money". The three highest profile are the banking groups Kaupthing and Landsbanki and the retail specialist Baugur.

Kaupthing recently acquired a stockbroker, Singer & Friedlander, while Landsbanki controls Teather & Greenwood. Kaupthing recently signalled its intentions to expand in Britain when its executive chairman, Sigardur Einarsson, relocated to New Bond Street with 30 staff. However, it remains small; last year it made pre-tax profits of just £9m.

Marks & Spencer has a stock market valuation in excess of Iceland's annual gross domestic product and the store's profits last year were more than £600m.

Baugur is the highest profile of the three groups and has stakes in a variety of British retailers, from the discount fashion chain Mk One to Hamleys and the Big Food Group, which owns Iceland supermarkets.

In recent months Baugur's chief executive, Jon Asgeir Johannesson, has been building a stake in French Connection.

Baugur also owns a large stake in Mosaic - the Oasis, Coast, Karen Millen and Whistles fashion group - alongside Kaupthing. This week Mosaic become the first British company to float on Icex, the Iceland stock exchange, with a valuation of £300m.

Last night the company, which is also part of a consortium bidding £1.2bn for the supermarket chain Somerfield, refused to comment on whether it was interested in M&S. Landsbanki and Kaupthing were unavailable.