Arcadia brands

Dorothy Perkins Burton Evans Wallis Top Shop Top Man Miss Selfridge

The news comes on the same day that the company released results which suggested its turnaround under chief executive Stuart Rose was continuing.

The retailer posted pre-tax pre-exceptional profits of �53.3m for the full-year, against a loss of �8.5m last time.

Bid approach

Baugur dominates retailing in Iceland, holding about 45% of the country's supermarket sales as well as operating sports shops and pharmacies.

It already has strong links with Arcadia. As well as being the largest shareholder in the company, it is also runs Arcadia franchises in Scandinavia.

Bonus is one of the chains operated by Baugur

"We have been getting information about the company, getting to know it well and working with the management," said Baugur's chief executive Jon Asgeir Johannesson.

"We feel there's opportunity now for us to make a bid for the whole company. I think the price is fairly fair."

The approach specifies a price of 280-300p per share, but analysts do not think this is high enough.

"I don't think it'll succeed at this level - it's at least 10-15% too low," said John Baillie, retail analyst at SG Securities.

He added that a fairer price would be about the 350p level.

Arcadia's share price surged on the news of the possible bid, and closed up 22.5% at 268p.

Sales up

Before news of the bid approach emerged, the focus had been on the encouraging results Arcadia had released.

"We are on track to return the business to sustained profitability although recent world events have created uncertainty, especially in the run up to the important Christmas trading period," Mr Rose said in a statement.

Stuart Rose: 'reasonably confident' we're not seeing an economic slowdown

Arcadia is now concentrating its efforts on its core brands, which include Dorothy Perkins, Burton, Evans, Wallis, Top Shop/Top Man and Miss Selfridge.

Sales at these stores grew by 6.6% on a like-for-like basis over the year to August 25th, and in the eight weeks since then, sales have grown by 7.9%.

Earlier this week the department store chain Debenhams said it had seen sales growth tail off over the past couple of weeks.

Arcadia said it had also seen a slowdown, but remained upbeat about prospects.

"Sales in the last two weeks have been weaker than the preceding six weeks, but not to the degree you saw at Debenhams," Mr Rose told the Reuters news agency.

"I think it's 60% the weather and 40% other factors, like security concerns....I'm reasonably confident it's not an economic slowdown," he added.

According to plan

Arcadia announced a recovery strategy in April and the company said the plan was progressing well.

"We have announced the disposal of our non-core brands, improved efficiency, reduced debt and tightened the management of our supply chain," Mr Rose said.

Two weeks ago Arcadia sold some of its chains - including Principles, Warehouse, Racing Green and Hawkshead - to Rubicon Retail for �35m.

The company also said it had cut costs at its Zoom internet retail business, and is confident that Zoom will break even by the end of the current financial year.