Jon Moulton’s private equity firm Alchemy Partners is believed to be the front runner in the race to buy beleagured Icelandic investment group Baugur.

Industry sources said this morning that Mr Moulton – one of the biggest names in private equity – has had direct talks with the management of Mosaic and department store chain House of Fraser. Mr Moulton is said to have close connections with the chief executive of Mosaic – which includes Whistles and Karen Millen.

Sir Philip Green, the retail tycoon, woke up to the news today that he now has serious competition in his bid to acquire Baugur – the chain that owns significant swathes of the British high street including department stores Debenhams and Hamleys.

Sir Philip told Times Online this morning he welcomed the competition for Baugur because it means the chain is now safe from bankruptcy.

“This is good because now the company won’t go into administration," said Sir Philip. “I just wanted to make sure the stores were safe,” he added.

Private equity groups Texas Pacific Group, Alchemy, Permira and Blackstone are all understood to be running the slide rule over Baugur in a bid to scupper Sir Philip, although the potential bidders are said to be confused by who actually owns the companies given the debt and equity in them are so widely dispersed.

One retail industry executive said: "It's like looking into a pot of spaghetti."

Texas Pacific Group is thought to be lining up a senior retailer executive to run Baugur Group in the event it takes control of the beleagured Icelandic giant.

The private equity group – whose European boss Philippe Costeletos bought out and floated department store chain Debenhams – is understood to be very serious about taking on British retail Sir Philip Green in a fight for Baugur.

Baugur has bought up a swath of the UK high street in the past decade, including Hamleys, Goldsmiths the jewellers, Mappin & Webb and fashion chains such as Karen Millen, Oasis and Principles.

It has been pushed to the brink of collapse by the meltdown in Iceland's economy and the nationalisation of three of the country's biggest banks.

Baugur was yesterday forced to insist that it was not lining up administrators amid growing speculation of talks with BDO Stoy Hayward. Retail sources continue to believe administration is on the cards.

Baugur's UK business employs 55,000, though many of its holdings are minority stakes. It owns 35 per cent of House of Fraser.

In a statement Mosaic said: "Mosaic has noted the recent press speculation about the future of the company and would like to state that the business does not require saving, as has been stated by a number of parties.

"The business has sufficient funding in place to meet all foreseeable obligations. Nobody could have foreseen the current situation in Iceland and the Board is examining all potential avenues to secure long-term funding in order to protect the future of its brands and employees.

"We continue to work closely with our colleagues at Baugur and have held talks with a number of parties, but would like to make clear that none of these have reached a conclusion.

"We are obviously encouraged, but not surprised by, the significant interest in our business which has a strong management team and portfolio of brands."

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