Somerfield has rejected a £1 billion takeover approach from the acquisitive Iceland-based retail group Baugur.
The Bristol-based company, which owns the Kwik Save chain, knocked back the approach as there could be no certainty that the proposal would deliver a formal offer at an "appropriate level" to shareholders.
Baugur recently completed the takeover of Big Food Group and is thought to be keen to bring the Iceland retail chain into the larger Somer-field operation.
It is the second time in less than two years that Somer-field has rejected a takeover approach. In 2003, it knocked back a £594 million approach from retail entrepreneurs John Lovering and Bob Mackenzie.
The chain, which operates from 700 Somerfield stores and more than 500 Kwik Save sites, recently revealed a decline in like-for-like sales as it joined other retailers in warning of challenging trading conditions.
The approach valued Somerfield at 190p a share and contained a number of pre-conditions.
The retailer said it was confident its own strategy, including the recent proposal to purchase 140 Texaco fore-court stores, would "signifi-cantly strengthen" its competitive position.