The announcement hit House of Fraser's share price. At 0943 GMT it was down 7 pence or 10% at 65p.

We have sought the co-operation of House of Fraser's management to proceed with this offer but they have consistently refused to enter into substantive discussions Tom Hunter Retail entrepreneur

Mr Hunter, who sold his Sports Division chain to JJB Sports in 1998 for �290m, netting him a personal fortune of �250m, is also interested in buying the Allders store group.

He approached House of Fraser in December with an offer of �197m ($321m) or 85p a share.

But his approach was rejected and the Takeover Panel ruled that he had to make a formal offer by 24 January or walk away.

In a statement Mr Hunter said his offer fully valued the company's shares and would have given shareholders a substantial premium.

"We have sought the co-operation of House of Fraser's management to proceed with this offer but they have consistently refused to enter into substantive discussions at that price.

"As a result we have decided not to proceed with our offer."

Possible merger

House of Fraser's chief executive John Coleman countered with a statement in which he said the company's board was as convinced as ever in its own strategy of developing brands, investing in stores and opening new shops.

"We expect this, coupled with continued cost control, will deliver enhanced shareholder value," he said.

There had been speculation that Mr Hunter wanted to take over both House of Fraser and Allders so that he could merge the two chains in order to cut costs.

Earlier this month he said he was reviewing his options in relation to Allders and "may or may not make an offer".