Fresh developments in the #1 billion-plus takeover saga at Somerfield kept shares in the UK's fifth biggest supermarket chain on the boil yesterday.

The FTSE 250 Index stock rose almost two per cent to a new high of 213p after the chain said it had agreed to enter into talks with potential bidders.

Three parties are thought to be interested in buying the group, including Baugur after the Iceland-based retail investor delivered a second proposal to the Somerfield board.

According to one report the company is thought to be determined to move quickly and may make a bid as early as next week.

Iranian property tycoon Robert Tchenguiz and the Livingstone brothers' London & Regional property group are also reported to be in the running.

While Somerfield did not disclose the identities or the value of the approaches, a report said Baugur was now prepared to offer between 210p and 220p a share - valuing the chain at up to #1.2 billion.

The new owner of the Iceland and Booker business Big Food sparked the takeover interest by tabling a #1 billion approach in February. It was later rejected by the Somerfield board.

Last week reports put the offer from Mr Tchenguiz and his backers from Apax and Barclays Capital at 205p a share with the Livingstone brothers at 190p.

The group, which floated on the stock market in August 1996, has 664 Somerfield stores and 560 Kwik Save sites.

Somerfield said talks with potential bidders would establish whether "proposals could be developed on a basis which could result in a formal offer at a price which could be recommended by the board".

Shareholders in the chain have seen the value of their investments soar since the company rejected an offer worth #594 million from retail entrepreneurs John Lovering and Bob Mackenzie in 2003.

Since then chairman John von Spreckelsen has improved the performance of the chain after repositioning it in the expanding convenience food sector.

Seymour Pierce analyst Rhys Williams said the interest in Somerfield reflected forecasts that the convenience store sector would grow in the medium term by more than the rate for larger supermarkets.

He said: "With most of the other convenience store operators having either been snapped up by the large supermarket groups such as Sainsbury or Tesco, or now in private hands - Alldays with Co-op and Budgens with Musgrave - we believe Somerfield is the last large chain available."

Last month sources close to Mr Tchenguiz ruled out a sale and leaseback of Somerfield's property portfolio if his bid was successful.

In last year's report and accounts the total value of Somerfield's property was stated as #772.1 million.