Analysts complain that Woolworths offers shoppers too many choices

Apax had offered �837m ($1.58bn), or 58.2p for every Woolworth share, but withdrew the offer late on Wednesday after having studied the firm's books.

Apax said it had been "unable to confirm certain key cash items" and would not proceed with the bid.

Woolworths played down any concerns about its business, saying it was a "large, profitable" company.

In afternoon trade, Woolworths shares were trading down 14.5 pence, or 26.4%, at 40.5p.

'Back to business'

Woolworths chairman Gerald Corbett said that "it is very difficult dealing with venture capitalists".

"We thought our shareholders would want us to explore" the 58.2p a share bid, Mr Corbett explained. "We have explored it, but they've withdrawn and so it is back to business as usual."

"We are a large, profitable, cash-generative business."

To underline that point, Woolworths said that it would raise its full-year dividend payment to shareholders by 10% to 1.65p a share.

What has Apax found? Justin Urquhart-Stewart, Seven Investment Management See Woolworths share price

Analysts were less optimistic and said that there have been concerns about Woolworths and its business model for a number of years.

Last month, Woolworths said retail conditions remain "difficult" after reporting a 1.3% fall in like-for-like sales during 2004.

And in the first 10 weeks of its financial year, like-for-like sales dropped by 3%.

Justin Urquhart-Stewart of Seven Investment Management said that Woolworths was one of a number of ailing UK retailers.

The problem facing Woolworths, he continued, was that the company did not have a very clear role to play on the High Street and consumers were unsure what exactly it offered.

Plot thickens

Apax declined to comment on what problems there were, saying only that they related to "key cash items".

"It is significant," said Mr Urquhart-Stewart, adding that many investors will be worrying about what the venture capital firm has uncovered.

"What has Apax found?" he asked, adding that it was unlikely that there was a hole in the company's accounts.

Analysts speculated that there may have been some unseen problems or costs related to Woolworths real-estate portfolio and plans to sell off its remaining Big W stores.

Or there may have been problems linked with the restructuring at its MVC home entertainments chain.

"We suspect that Apax really only wanted the entertainment division and decided that there was insufficient upside in the retail business to take a chance on buying the whole group," said Nick Bubb, analyst at Evolution Securities.

Others speculate that Apax may have realised it could not secure a quick-enough return on its investment to satisfy its financiers in what is a difficult retail environment.