Takeover activity in the supermarket sector has developed on a second front after it emerged Somerfield had been approached.

The UK's sixth largest chain confirmed yesterday it was a possible takeover target.

Somerfield said it had received a proposal, although it stressed it was far from certain that a full offer would be made.

Icelandic retailer Baugur, which already has a three per cent stake in the company, has been linked to a possible bid.

The interest sent Somerfield shares up 23 per cent to 90.75p, although one analyst said a winning bidder may still have to offer between 100p and 110p - valuing the company as high as £540 million.

Somerfield, which employs 56,000 people and is based in Bristol, operates 588 Somerfield stores and 686 Kwik Save outlets around the UK.

It has been battling to revive its fortunes after problems integrating the Kwik Save business it bought in 1998 led to falling profits and sales.

News of the interest came as rival Safeway detailed the impact of a five-way bid battle on its business. Morrisons, Asda, Tesco, Sainsbury's and BhS entrepreneur Philip Green are all courting the UK's fourth largest supermarket chain in a takeover saga which has now lasted three months.

And with the results of a regulatory review on four of the five potential bids not expected until August, Safeway said it faced "challenging circumstances".

The uncertainty has forced it to virtually halt a refit programme, while suppliers have expressed concern about the future ownership of the company.

Amid fears about staff morale, Safeway has also put in place an incentive scheme for staff, particularly at its head office in Hayes, west London.

Despite the takeover distraction, fears of a slump in trading were allayed by the group yesterday.

It said fourth quarter same-store sales were only 0.1 per cent down on a year earlier and added full-year profits would be in line with market hopes.

In a trading statement, Safeway explained its focus would now be on the running of day-to-day operations and in meeting the needs of customers.