Baugur's boss says big deals will be put on hold for the rest of 2005

Baugur is withdrawing from a consortium seeking to buy Somerfield, the UK's fifth largest grocer, in response to a police investigation in Iceland.

Chief executive Jon Asgeir Johannesson has denied the allegations and Baugur has expressed its full support for him.

But Baugur is to shelve any big deals pending the outcome of the inquiry.

Acquisition spree

The Icelandic authorities have brought 40 charges of fraud against Mr Johannesson and four others.

A trial is expected to take place later this year.

Baugur has claimed that the charges - which surround alleged breaches of accountancy rules - are politically motivated.

We believe that the only correct action to take is to withdraw from such a public transaction Hreinn Loftsson, Baugur chairman How Baugur became a retail force

However, the allegations have prompted the company to pull back the throttle on its rapid UK expansion.

Baugur has concluded 45 deals since 1998, acquiring food retailer Iceland, cash and carry operator Booker, the Goldsmiths jewellery chain and Hamley's, the London toy store.

Less profile

Mr Johannesson told The Sunday Times that it would scale back its acquisition activity, although it would still look at small opportunities.

"High profile public to privates (deals) will be difficult over the next six months while we clean this up," he said.

"It (the fraud charges) are going to set us back a bit."

Mr Johannesson said Baugur's existing UK businesses were not affected and insisted that it had the full backing of its banks.

Baugur was part of a group hoping to acquire Somerfield

Baugur was a key partner in a group trying to buy Somerfield, alongside venture capital firm Apax Partners, retail entrepreneur Robert Tchenguiz and investment firm Barclays Capital.

'Correct action'

Despite Baugur's withdrawal, the consortium will go ahead with its bid. Baugur will sell the shares it already owns in Somerfield to Mr Tchenguiz.

Baugur said it would continue to do business as usual while its chief executive "vigorously" defended himself.