Baugur, the acquisitive Icelandic investment group, is expected to try to re-enter the £1 billion-plus bid battle for Somerfield, Britain's fifth largest supermarket group, after a district court threw out 40 fraud and embezzlement charges levelled against its chief executive, Jon Asgeir Johannesson.

Baugur, which already owns a clutch of British retail assets, was forced to withdraw from a consortium circling Somerfield in July after the charges were originally made against Mr Johanneson and five fellow defendants.

Baugur, which was working with Barclays Capital, private equity group Apax Partners and property entrepreneur Robert Tchenguiz on its Somerfield bid, has always stood behind its chief executive and rebuffed the charges.

And today, in the first time that Icelandic judges have questioned a criminal presentation by a state prosecutor, district judges dismissed the charges against Mr Johannesson and his co-defendants on the grounds that they were flawed and ill-prepared.

The charges, which have dogged Baugur's expansion plans, represented the culmination of a three-year probe into Mr Johannesson's financial dealings around the group - in an investigation that company sources have consistently claimed has been politically motivated.

Having effectively put big acquisitions on the back-burner pending the outcome of the trial, today's move paves the way for Baugur to reignite its British takeover ambitions.

As well as owning frozen food group Iceland and Hamleys, the Regent Street toy store, Baugur also owns retailer Jane Norman and a substantial stake in French Connection, the struggling high street clothes chain.

The Icelandic state prosecutor has launched an appeal against the ruling, but this is expected to last as little as three weeks.

A spokesman for Baugur refused to comment to Times Online about the possibility of the group muscling back in to the Somerfield consortium, saying it was far too early to consider, especially while the appeal process is still alive.

He said: "We welcome the decision by the district court. We have continually supported Jon Asgeir Johannesson and stood by his claims of innocence."

However, Baugur has previously made no secret of its interest in Somerfield - and its disappointment at having to leave the consortium - and it is likely that the group will take soundings about the preparedness of members to allow it back in.

The other consortium mulling a takeover of Somerfield is composed of property entrepreneurs the Livingstone brothers.

In order to head off further uncertainty for Somerfield, the Takeover Panel has imposed a deadline of October 14 for bidders to submit their proposals.

The time frame for Baugur to re-entry the fray would be tight but not impossible.

Shares in Somerfield were trading 0.25p higher this afternoon at 200p, valuing the group at more than £1 billion.

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