House of Fraser's board, led by the chairman Michael Wemms, said discussions with Baugur about the 148p-a-share bid were continuing. Baugur will scrutinise the group's books and a firm offer could be on the table a week on Monday.
But Baugur's advances have met with fierce opposition from some investors. Robin Geffen, of Neptune Investment Management which holds a 3.8 per cent stake in House of Fraser, is trying to rally shareholders into rejecting the offer and holding out for a higher price. He has spoken to some of the company's top 20 shareholders who also believe Baugur's offer undervalues the business.
Mr Geffen said the offer was "extremely opportunistic and insulting to shareholders. A full price at this stage is 213p." He said the price was underpinned by House of Fraser's strong dividend cashflow and property assets - the core properties held in an off-balance sheet joint venture with British Land and the nine James Beattie stores bought a year ago. Mr Geffen said management had fended off other cheap bids in the past, notably an 85p-a-share approach from the Scottish retail entrepreneur Sir Tom Hunter, in partnership with Baugur, in December 2002.
The Icelandic approach had been expected since Baugur acquired a 9.5 per cent stake in the department store in April for 135p a share, weeks after talks between House of Fraser and the private equity firm Apax ended. Baugur owns large chunks of the UK high street, including Hamleys and Whittard of Chelsea.
It is thought Baugur is lining up other backers. Sir Tom is not involved but would take a look if approached.