Philip Mountford is expected to step down as chief executive of Moss Bros after a potential £40 million takeover of the menswear retailer collapsed yesterday.

Baugur, the Icelandic investment group, said there was too high a risk that the bid it has been plotting since February would not go through, given the aggressive stake-building in Moss Bros by Laura Ashley, the home furnishings group.

Keith Hamill, chairman of Moss Bros, had stated his intention to leave at the end of the bid process. One executive close to the Moss Bros board said it was “almost certain” that Mr Mountford will follow.

It is understood the Moss Bros chief executive was keen to step down before Baugur announced it was considering a bid, priced at 42p per share, three months ago. Moss Bros declined to comment.

Baugur's decision sparked a 12 per cent fall in Moss Bros shares, down 5p to 40p, as analysts said the retailer faced a prolonged period of uncertainty. Baugur still controls a 29percent stake in Moss Bros through the Unity investment vehicle, while Laura Ashley owns a 9.86 per cent stake and members of the Moss and Gee families control more than 25 per cent.

Baugur insisted it had arranged all the necessary funding to go ahead with a takeover but said the execution-risk associated with completing the offer was unacceptable. Gunnar Sigurdsson, Baugur chief executive, said: “We are disappointed by recent developments that have effectively frustrated our proposed offer, but remain supportive of the management team.

“Baugur is to continue to work with the board, management and other major shareholders to identify ways to unlock the potential in the business.”

Baugur took a minority stake in Moss Bros two years ago. It is believed to have had a bid priced at between 80p and 85p per share turned down by the Moss and Gee families in 2006. Laura Ashley has built its stake through a series of purchases since February.

Moss Bros shares have fallen 30percent in the past year, reflecting the slowdown on the high street and the downturn in the menswear retailer's fortunes.

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