The board said it had received a non-binding indicative offer of ISK17.5 (13p) an ordinary share, valuing the business at about ISK50.76 billion (£400.5 million). The offer came from Newco, a new company to be formed and owned by Baugur and selected investment partners.
Mosaic Fashions said it had commenced discussions with Baugur. In a statement it added: 'The process remains at an early stage and there can be no certainty as to whether any formal offer will be forthcoming or the terms of any such offer, if made. The board will make a further announcement when appropriate.'
Baugur floated Mosaic Fashions on the Icelandic Stock Exchange in 2005. At the time of the listing, Baugur retained a 36.5 per cent stake in the company. Kaupthing, which often works with Baugur on its investments, is also believed to hold a significant stake in the business.