Baugur's £1bn Somerfield bid

ICELANDIC retail giant Baugur is looking to extend its UK supermarket presence with a £1bn takeover approach for Somerfield.

The company, which will tie up its £326m purchase of Iceland food chain-owner Big Food Group on Friday, is believed to be preparing a 190p per share cash offer, a 28½p premium on today's opening price.

Somerfield said the current management team is expected to run the business if the bid is successful. The group incorporates both Somerfield and Kwik Save and is the UK's fifth largest food retailer, operating 1,250 stores nationwide.

If Baugur is successful with the acquisition, it would have a combined share of 7.6% of the UK grocery market, some way off fourth-placed Morrison Group with 12.4%.

Somerfield suffered a poor Christmas period, hit by fierce competition from rivals and the task of integrating 114 stores bought from Safeway. Profits for the six months to 6 November surged by 80% to £27.9m before tax and exceptionals.

It was touted as a bidder for the Big Food Group itself last year but ruled itself out of making an approach.

Bryan Roberts, analyst at retail consultant Planet Retail, said: 'It comes as no great surprise. They've had a 3% stake in the company for quite a while which went up to 5% last year.'

The Icelandic company is already a significant presence on the UK High Street. It holds stakes in stores such as Oasis and Karen Millen, both acquired in the past year, and also holds a share of House of Fraser, for which it was rumoured to be planning a takeover bid last year.

Baugur is likely to sell off the Woodward Foodservice business from the Big Food Group once the sale is completed, retaining the Iceland and Booker Cash and Carry businesses.

Somerfield's shares jumped by 21½p to 182½p on the bid announcement. The company said: 'The board is investigating this approach. There can be no certainty that an offer will be forthcoming.'