Woolworths Group�s share price surged more than 20% at one point yesterday, after it rejected an offer from Iceland Foods founder Malcolm Walker for its retail division.

Woolworths Group's share price surged more than 20% at one point yesterday, after it rejected an offer from Iceland Foods founder Malcolm Walker for its retail division. The shares later closed 0.75p ahead at 3.375p -a gain on the day of 11% - in London dealing.

Woolworths' shareholders are now awaiting Walker's next move.

The chain of stores - which sell goods including sweets, electrical appliances, homewares and computer games - said it rejected Iceland's bid because it undervalued the company's assets, involved unpractical restructuring and would have saddled the company with pension liabilities. Walker has not said how much he has offered for Woolworths but one retail industry source said it is believed to be "tens of millions" of pounds.

At its financial year end on February 2, Woolworths' net debt was £124m. And according to Woolworths' annual report, it has a pension deficit of £48.2m, but this is due to be revalued.

The boost to shares is a welcome bit of good news for Woolworths, which has suffered from reduced customer spending amid the credit crunch. Its full-year profit almost halved in 2007, compared to the previous year. Yesterday's performance on the London Stock Exchange gave the company a value of around £109m.

A takeover would add 815 stores to Iceland, which specialises in frozen produce and is owned by Reykjavik-based Baugur Group Hf. Baugur holds a 10% stake in Woolworths. A spokeswoman for Baugur would not comment on the offer from Iceland Foods.

Woolworths also confirmed yesterday that chief executive officer Trevor Bish- Jones resigned on August 15. Steve Johnson, the former head of home-improvement retailer Focus DIY, is scheduled to join the company on September 1 as the new chief.

"The board looks commit- ted to trying to turn around the retail business and rebuild the group," said Mark Photiades, an analyst at Landsbanki in London. He has a "reduce"

recommendation on the stock.

Woolworths, which is working on a strategic review, revealed last month that consultants believed it had the potential to build a sustainable business based on its small and medium-sized stores.

However, John Stevenson from Shore Capital predicted worse times ahead for the stores. He said: "We expect the core retail operations to deliver significant losses for the second half of this year and the full year as well, reflecting the impact of both weakening gross margins and like-for-like sales."