Jon Asgeir Johannesson became chief executive of Baugur in 2002

Its comments came as five people at Baugur face fraud charges.

Chief executive Jon Asgeir Johannesson and four others face 40 charges related to fraud and breaches of accounting rules, Iceland police have said.

The five facing allegations have "strenuously" denied all charges. The firm said it was business as usual.

They [the accused] strenuously deny any wrongdoing and the company stands by them Baugur spokesman Baugur profile

A spokesman for Baugur told the Sunday Times at the weekend that the charges were politically motivated.

More details would be released shortly, the National Commissioner of the Icelandic Police said.

The charges follow a three-year investigation, which began with searches on Baugur's offices and included investigations in the Faroe Islands and Luxembourg, the police said.

Mr Johannesson is said to own 70% of the company, which has a number of retail and property investments across Europe.

Deal in crisis?

Baugur, which already has a big presence on the UK High Street, is part of a consortium in talks with Somerfield.

It is not yet clear what the charges means for the Somerfield bid

Baugur and Iranian property tycoon Robert Tchenguiz confirmed earlier this year they are discussing a deal with Somerfield.

The consortium is also said to include London & Regional Properties and Japanese bank Nomura.

If the deal were to be successful, Baugur would become the fifth-biggest food retailer in the UK, with a share of about 7.6%, behind Morrison, which bought Safeway in 2004.

However, newspaper reports on Sunday speculated that the charges could scupper the deal. One report suggested that Baugur had already offered to withdraw from the consortium.

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.

In common with other major retailers, Somerfield, which runs 664 Somerfield stores and 560 Kwik Save sites, has suffered a drop in like-for-like sales as consumer spending slows down.

Baugur's UK retail presence also includes fashion chains Karen Millen, Oasis and Whistles, jewellery stores Goldsmiths, and London toy shop Hamleys.