Liberty will this week receive a £68m bid from Marylebone Warwick Balfour, which aims to transform the upmarket department store into an internet retailer.
The MWB board will meet mid-week to discuss the proposal which is expected to trigger an offer of around £3 a share. Liberty's share price closed on Friday at £2.
Deutsche Bank is MWB's retained advisor and will be instructed to handle the bid, valuing Liberty at £68m. MWB chief executive Richard Balfour-Lynn has already secured backing from Bryan Myerson, the corporate raider who holds a 16.9 per cent stake in the company. He is keen to see the group shaken up.
The two men cemented their relationship last month, when MWB took a 17.5 per cent stake in Illuminator, an internet incubator fund part-owned by Mr Myerson. If the bid is successful, MWB is expected to use Illuminator to turn Liberty into an e-tailer and transform its Regent Street store into a serviced office centre.
MWB has held talks with Elizabeth Stewart-Liberty, the family matriarch who owns a 20.7 per cent stake. She has said that an offer of below £3 a share would be rejected. If MWB bids above £3 a share it will rule out Moorfield Group, another potential suitor.
The quoted property company was working on its own plan to turn the 125-year-old department store into an e-tailer with the backing of Ms Stewart-Liberty. It is understood the company's managing director, Marc Gilbard, has ruled out a bid over £3 a share.
If MWB takes control of Liberty it would mark the end of a turbulent chapter in the department store's history.
Last September, Liberty reported a pre-tax interim loss of £879,000. It followed a boardroom coup the year before that led by Mr Myerson which ousted former chairman Denis Cassidy.