Asda has abandoned plans to bid for the whole of rival Iceland but instead plans to join forces with a private equity firm and handpick which stores to take on.

Sky News reports that the supermarket, owned by Wal-Mart, decided earlier this week not to mount a full bid and is understood to be contemplating talks with private equity firms Bain Capital and BC Partners, which are interested in the frozen foods retailer, about taking a smaller number of its stores.

Asda’s decision is largely driven by competition according to Sky News.  The supermarket would have to shed about half of Iceland’s stores. Asda had been in talks to go-ahead with a joint bid for Iceland with Scottish supermarket chain Farmfoods to circumnavigate competition hurdles.

Iceland’s major shareholder, collapsed Icelandic bank Landsbanki, is selling its stake in the business with the second round of offers due to be submitted later this month.

Morrisons and private equity groups, including Blackstone, are expected to be amongst the bidders.

Iceland founder Malcolm Walker is expected to enter the bidding process this round. Walker and his management team own 23% of the retailer. The Iceland founder only has to match the highest bidder to win the auction due to a clause in his share agreement.

Sky reports that Iceland is understood to have experienced strong Christmas trading. The news channels said people close to the supermarket have reported like-for-like sales growth of at least 5%.