Carrgran has raised its bid for Arnotts, offering €12.75 in cash for the retailer, an 8 per cent increase on its previous offer of €11.80.The offer values the company at nearly €227 million but it needs the co-operation of the Arnotts board if it is to progress.

The bid is only an indicative one as Carrgran said it had no intention of making a formal offer without the board's recommendation.

Carrgran, which is backed by US investment house Lehman Brothers, also confirmed that it would not be prepared to make a bid without the opportunity to carry out due diligence.

Because the Irish Takeover Panel has set a deadline of later today for Carrgran to announce a firm intention to make an offer, the indicative bid can only progress if the Arnotts board requests an extension of this deadline.

"Carrgran has therefore asked the board of Arnotts to support a request to the panel for a three-week extension to this deadline to allow the board of Arnotts time to evaluate Carrgran's proposal in consultation with Carrgran," the bid vehicle said last night.

It noted that its proposed offer represented a premium of 83 per cent to the average Arnotts closing share price prior to Carrgran's initial approach in March last year.

Arnotts shares closed 80 cents higher last night at €12.50 as the market factored in the possible offer but also the hurdles involved.

One fund manager said the Arnotts board would have difficulty defending its refusal to talk to Carrgran following the latest offer.

"It's a reasonable price given the valuation attached to the shares by the market. It would be difficult for them to get that share price through normal trading," he said.

Mr Peter Frawley, analyst with Merrion Stockbrokers, also believes the latest offer is a fair one.

"I believe it fairly values Arnotts at this point in time. It is subject to board approval but I would expect the share price to fall rapidly if the bid is rejected."

Carrgran also moved to reassure the company's employees and its pension fund trustees that it did not have any designs on the €68 million surplus in the Arnotts pension fund.

"Carrgran's proposals are not contingent in any way on the release of the surplus and Carrgran is financially neutral in the matter of a release of any surplus," it said.

It added that it would be prepared to give formal assurances to the board of Arnotts as part of any recommended offer it might make that the surplus would be retained within the fund.