BAUGUR, the Icelandic investment group, is preparing an estimated £40m takeover bid for Moss Bros, the menswear chain that hires out formalwear for weddings and other special occasions.

City sources said that Baugur, which owns high-street brands such as House of Fraser and Hamleys toy store, is working on detailed bid proposals and could make an approach to the Moss Bros management team led by Philip Mountford as early as this week.

The bid would come only days after shares in Moss Bros dived when it became the latest retailer to issue a profit warning before the crucial Christmas trading period.

It is thought that an offer from Baugur would be pitched in the “forties per share”, slightly above the current share price, which closed at 37p on Friday, valuing the business at £35m.

Baugur already owns 29% of Moss Bros through its Unity Investments vehicle, which was set up with Kevin Stanford, founder of the Karen Millen chain.

Moss Bros has more than 150 stores across the UK. The Moss Bros Group owns and operates the franchise for Hugo Boss and Canali. It is divided into two trading divisions, the first mainstream, incorporating Moss, Moss Bros, Moss Bros Hire, the Savoy Taylors Guild and factory outlet stores.

The smaller fashion division has 35 stores, incorporating brands such as Cecil Gee, Hugo Boss, Canali, and Beale & Inman. The group also has Moss Direct, a mail-order and internet shopping division.

Since earlier this year, Baugur’s Unity investments has had two nonexecutives on the Moss Bros board.

Moss Bros has been the subject of persistent takeover interest. Fashion entrepreneur Shami Ahmed tried to buy the company in 2002.

Word of Baugur’s move came as speculation intensified that the Icelandic group may launch a spring bid for Debenhams, the department-store chain. Baugur is barred from making an offer until the end of January under Takeover Panel rules, but analysts believe that the Icelanders will then revisit the idea. Analysts suggested that Baugur could generate huge synergies from merging back-office functions and increased buying power from owning both Debenhams and House of Fraser (HoF). It may also close a handful of weaker performing HoF stores and merge them with Debenhams, they speculated.

Baugur refused to comment on takeover talk. But Gunnar Sigurdsson, chief executive of Baugur, hit back at accusations that the group might be forced to sell off the strategic equity stakes that it has amassed in a string of publicly listed retail companies.

The value of the stakes it owns has more than halved since the beginning of the year as share prices have tumbled amid declining consumer confidence.

Sigurdsson said: “When we take stakes, we do so for strategic reasons because there is something we would like to do with the retailer or we believe someone else may do something with the retailer.

“When the stakes do decrease in value, we would be more likely to buy more and add to our positions. The idea that we are now so squeezed that we have to sell some of our stock is just nonsense. The current situation plays into our hands.”

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