Retailing group Arnotts is the subject of a possible takeover bid worth €205 million. The possible bid is being led by corporate financier Mr Peter O'Grady Walshe, former Arnotts trading manager Mr Mark Delaney and financial house Lehman Brothers.

The three have formed a vehicle called Carrgran, which made an offer for Arnotts in June.

The offer, worth €11.50 per share, was rejected by the Arnotts board, but discussions with individual board members have occurred since.

Mr Delaney was employed by Arnotts at the time of the original bid but has since left the company.

In an announcement to the Irish Stock Exchange last night, Carrgran said that it "continues to review its strategic options", noting that this may include making a further offer. The announcement was made because the company's share price rose 5 per cent to €10.25 yesterday.

It is understood that Carrgran will not launch a hostile takeover process, choosing instead to pursue a recommended offer.

Standing in the way of success would be a significant staff lobby, with almost 13 per cent of the company held by the staff pension fund. A further 10 per cent is owned by the Nesbitt family, with company chairman Mr Michael O'Connor holding 3.5 per cent. Bank of Ireland Asset Management, Fidelity and Aberdeen Asset Management are also substantial shareholders.

If its offer were to be accepted, it is understood that Carrgran would concentrate on the firm's core assets. This could mean that non-core assets, such as security firm Brink's Allied, could be divested.

It is likely that any buyer would be very interested in the Arnotts property portfolio, one of the most extensive in Dublin retailing, which could present attractive sale and lease-back opportunities.

The company also benefits from a low gearing ratio, leaving ample capacity for targeted expansion.

In August, Arnotts posted pre-tax profits of €6.7 million for the first half of this year, up 20 per cent on the same period of 2001. At the time, analysts questioned the company's ability to maintain growth levels seen in recent years.

The company's fortunes are closely tied to trends in retail spending and consumer sentiment.

Arnotts directors were not aware that a statement was to be made by Carrgran last night. The company will respond "in due course", a spokeswoman said.

It is understood that all discussions between Carrgran and individual board members have been informal. The most recent Arnotts annual report lists eight directors, of whom six are non-executive directors.