Through its UK vehicle Hines Ltd, Hicks Muse said it had bought 16.3 per cent of Hillsdown in the market at up to 141p a share and, in accordance with Takeover Panel rules, it would increase its offer from 127p to this 141p level.
The announcement was followed within minutes by a statement from Candover Partners, the British venture capital group, saying it was preparing a bid. Candover said it was considering making an offer at a price "considerably in excess" of the original Hicks, Muse bid. It urged shareholders to take no action until it made a formal announcement.
The British fund later said it had noted Hicks, Muse's subsequent intervention in the market, again recommending no action. The group is expected to make a fresh statement today.
Shares in Hillsdown, which languished at 86.5p just two weeks ago, jumped from 133.5p to 145p. The bidding war surprised City analysts, who regarded 127p as a full price to pay for the furniture-to-Typhoo tea group.
Both financial companies are launching what amount to break-up bids for the conglomerate. But Candover is likely to frame the deal as a management buy-out, leaving the current executive directors in charge.
Non-executive directors have already recommended the cash bid from Hicks, Muse, while executive directors have carefully avoided recommendations.
Last year, a much larger Hillsdown faced a similar break-up bid from Unigate. Unigate initially proposed a price of pounds 1.6bn but backed out of talks at the last minute.
Since then, Hillsdown's management has spun off its Fairview Homes subsidiary. Terranova Foods, its chilled foods operation, fell to a pounds 274m hostile bid from Unigate in April.
Hillsdown has said that it plans to return capital to shareholders after further disposals, including its poultry, drinks, biscuits, furniture and potato operations. But the plans have been hamstrung by a failure to generate enough firm offers to allow it to go ahead.