It is thought that Hargreaves, who already holds a 53 per cent stake in the company, could come up with an offer which values the retailer at between£700 million and£900 million. He has lined up Barclays Capital to provide backing for the bid.
Matalan confirmed Hargreaves was in dispute with the board after he objected to a proposed dividend of 6p a share, which he felt was too high.
In May, Matalan posted pre-tax profits down from£80.5 million to£56.7 million. Like-for-like sales at the value clothing and homewares chain dropped 6.9 per cent for the year to February 25. The retailer has suffered from increasing competition from supermarkets and other cut-price clothing chains.
The group will give an update on current trading at its AGM this Wednesday, July 5.