Baugur, which already has a 22 per cent stake in BFG, made an initial takeover bid of 110 pence per share back in September, valuing the group at £378 million. But a poor first half trading performance, with pre-tax losses of £9 million, led the Nordic group to rethink its bid, eventually proposing a more reasonable offer of 95 pence per share, or £326 million.
This bid was recommended by the BFG management late last month, this week the retailer confirmed that the takeover would proceed by means of a scheme of arrangement (a simplified transaction designed to speed up the acquisition process when both parties are in agreement) with completion expected by February.
Under the terms of the deal, a company called Giant Bidco, led by Baugur and its financial partners, will acquire BFG and then reorganise the group along retail (Iceland), wholesale (Booker) and foodservice (Woodward) lines. A fourth company, called PropCo, will then buy the company's property portfolio for around £213 million on a leaseback arrangement.
Woodward and Booker will continue to be managed by Giant Bidco, with the foodservice business expected to be sold once the deal is completed.
Baugur is the biggest retail group in Iceland, and has extensive investments in Britain, including toy retailer Hamleys, the Goldsmiths jewellery chain and clothes retailer Oasis, but with little or no food retail experience the company has called upon local expertise to manage the BFG business.
The merger of Iceland and Booker which led to the creation of BFG will now be unwound, with the frozen food retailer operating as a standalone business headed by Malcolm Walker, the company's founder and former chairman who was ousted in 2001 after disagreements over strategy - notably the decision to merge with Booker.
Walker's name had already been linked to Baugur's bid, with the former head of the company thought to be bidding for a number of Iceland stores to convert to his new Cool Trader chain. But instead he will return to take the reins at IceCo, a stand alone subsidiary controlled by Baugur, and is already pledging to take the high street retailer back to its frozen routes.
With the major multiple grocers encroaching on Iceland's traditional high street locations, the BFG management had been developing its own convenience store format to maximise the potential of the town centre locations - with some success - expanding the range of products on offer to include ambient and chilled grocery, and more fresh food.
But Walker said that Iceland had no place taking on the likes of Tesco and Sainsbury at their own game, and that he would pursue a strategy centred on the company's core frozen food offer - a risky business in a market where the immense buying power of the multiples has forced prices down and piled even more pressure on their smaller rivals.
Iceland is now expected to buy Walker's Cool Trader business to consolidate its position as the country's leading frozen food specialist.
BFG's chief executive Bill Grimsey conceded that the company's efforts over the last three or four years were unlikely to be enough to guarantee the long-term future of the company without the support of the Baugur bid.
"We are mindful that, despite the successful execution of our strategies for our businesses, the sectors we operate in are highly competitive and conditions are not getting any easier," he admitted, adding that while Woodward had responded well to the investment made in it, the much larger units of Booker and Iceland had found it difficult to grow sales in their sectors.
The company said that the decision to sell to Baugur had not been taken lightly, and that other avenues had been explored before the deal was agreed - notably a search for potential takeover partners. Indeed, if BFG had been successful in its bid for fellow high street retailer Londis earlier this year (it put up a valiant fight against eventual victor Musgrave), the Baugur bid might well never have been made.