BAUGUR, the Icelandic retail group, is planning to team up with Tom Hunter, the Scottish retail entrepreneur, and Kaupthing, the Icelandic bank, in a potential £378 million offer for Big Food Group, the owner of Iceland, The Times has learnt.

Shares in Big Food Group (BFG) rose 10½p, or 11 per cent, to 102¾p yesterday, after the retailer admitted it had received a “preliminary approach” from Baugur worth 110p a share.

BFG said that it had agreed to open its books to Baugur for due diligence so that the Icelandic group can explore whether to put forward a formal bid.

However, Baugur has reserved the right to make an offer at a lower price provided it has the blessing of BFG’s board.

One large shareholder last night described 110p as “a little on the low side”, indicating that such a move would not be welcomed by investors.

Baugur is being advised by Deutsche Bank. A spokesman for Baugur said that, should it decide to proceed with a formal offer, it already had sufficient funds in place.

Sources close to the deal said that Kaupthing and Mr Hunter, who worked closely with Baugur on his plans to bid for House of Fraser last year, had both been approached as potential partners. Bill Grimsey, BFG chief executive, and Bill Hoskins, finance director, are thought likely to be retained to manage the business, in the event of a takeover.

Analysts were surprised that Baugur was planning to make a bid for BFG, as many bankers believed the Icelandic group was seeking an exit route after seeing its 22 per cent stake in BFG nearly double in value.

Some analysts suggested that Baugur was attempting to draw out other potential bidders for BFG.

Baugur said: “We have been a significant shareholder for nearly two years and we think that if we work with management we can add or increase value by being actively involved.”

The scale of Baugur’s potential task to turn round BFG was highlighted yesterday when BFG revealed that underlying group sales had seriously deteriorated since its last update in May. Underlying sales fell 1.7 per cent in the 23 weeks to September 10. For the last 10 weeks of that period they were down 3.2 per cent.

Underlying sales at Iceland were down 3.8 per cent in the 10 weeks to September 10, compared with a 1.9 per cent fall in the six weeks to May 14.

Mr Grimsey said that BFG would not be actively soliciting rival offers. However analysts speculated that a private equity firm might step in.