The offer values Hamleys at �53.1m ($88m), and is higher than an agreed bid previously made by the Icelandic retail firm Baugur together with members of Hamleys' management team.

Earlier on Friday, Baugur had raised its offer from 205p a share to 226p a share in an attempt to deter any rival offers.

Shares in Hamleys closed up 23.5p, or 11.3%, at 232p following news of the second bid.

Tim Waterstone's bid vehicle for the acquisition, Children's Stores Holdings, has offered Hamleys' investors 230p a share.

Toy story

Besides the famous store in central London, Hamleys also has outlets at Heathrow Airport, Covent Garden in central London, and at Schiphol Airport in Amsterdam.

It also has a web-based direct sales operation.

The company floated on the London stock market in 1994 and, after seeing profits fall in the late 1990s, has undergone a revival in recent years

Earlier this month, it announced a 35% increase in annual sales to �5.6m, with underlying sales up by nearly 10%.

At the same time as it released its results, it announced it had agreed to be taken over by Soldier Ltd, the bid vehicle of a management buyout team backed by Baugur.

At the time, Baugur's chief executive Jon Asgeir Johannesson described the acquisition as "a significant opportunity to strengthen our UK retail interests".

Baugur already has a 22% stake in Big Food Group - which owns the Iceland retail chain - and also owns stakes in House of Fraser, Mothercare and JJB Sports.

In a statement issued on Friday, Soldier Ltd said it had noted the rival bid and was "considering its position".

'Fantastic brand'

Tim Waterstone gave his name to the High Street book chain which he founded but which is now owned by HMV.

Recently he has set up his own chain of toy stores called Daisy & Tom which are aimed at the under eights.

The chain currently has five stores. These are located in London, Manchester, Guildford, Chester and the Bluewater Centre in Kent.

"Hamleys is a fantastic brand and we believe the acquisition of Hamleys by Children's Stores will provide a number of synergies with the Daisy & Tom business, assisting Hamleys to continue to grow and prosper," Mr Waterstone said.