Speculation is mounting that Baugur is set to walk away from its £1 billion Somerfield bid.

The Icelandic investment group has been under pressure to quit a consortium bidding for the Bristol-based retailer following allegations of fraud in Reykjavik.

Baugur’s chief executive, Jon Johannesson, has been notified he is facing criminal charges, and other members of the consortium, including property tycoon Robert Tchenguiz and Barclays Capital, are reported to be unhappy with the “reputation risk” Baugur now poses to the bid.

Media reports indicate talks are now underway to allow Baugur to “walk away gracefully” from the deal.

Meanwhile, Somerfield unveiled mixed results for the first nine weeks of the year to July 2, and said business continued to be challenging.

Group underlying sales, which strip out sales from new and closed space, fell 2.7 per cent. Kwik Save bore the brunt of the decline, with sales down 6.4 per cent, mainly due to store closures. The Somerfield fascia saw a drop in underlying sales to 0.1 per cent.

Steve Back, chief executive, said: “The like-for-like sales trend has improved in recent weeks and we will grow market share further.”

The company is reportedly set to cut prices to bring it into line with competitors and has employed consultants, Cap Gemini, to review its core processes.

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