Somerfield has rejected an offer from Baugur

Icelandic retail group Baugur and Iranian property tycoon Robert Tchenguiz have confirmed they are discussing a deal with Somerfield.

Analysts believe a joint bid could value Somerfield at up to �1.2bn.

Also in the bid fray are brothers Ian and Richard Livingstone, owners of London & Regional Properties.

In response to the latest news, Somerfield shares dipped back on disappointment that the takeover battle was no longer a three-way contest.

Shares in the group closed down 2p, or 0.93%, at 212pence on Tuesday.

"We believe that the members of the consortium provide considerable operational and financial skills together with substantial experience in the sector," said Baugur and Mr Tchenguiz in a joint statement.

Early days

However, the two parties stressed that talks were still at a "very early stage" and that any bid on the table would be dependent on an examination of Somerfield's accounts.

Baugur already owns 5% of Somerfield and is thought to be keen to merge the operations of Big Food group, which it bought last year, with the Somerfield group, which has the Kwik Save chain under its umbrella.

Somerfield turned down Baugur's �1bn offer earlier in the year, saying it was not in shareholders' interests.

The chain also rebuffed a takeover worth �594m from retail entrepreneurs John Lovering and Bob Mackenzie back in 2003.

Since then Somerfield has improved its performance after focusing more on convenience foods.