The Huddersfield-based group advised investors to take "no action whatsoever" in relation to the offer from food wholesaler Crown Crest, which already owns just over 30 per cent of Instore.

Crown Crest offered 5p a share in cash for Instore, a 4.8 per cent discount to the Instore's closing price on June 13, the last working day before it announced a takeover approach. But Crown Crest has received irrevocable support for its offer from another major shareholder South African group Tradegro in respect of 20.4 per cent of its 35 per cent stake in Instore.

Once this goes through Crown Crest will have control of the company with a 51 per cent stake and it will be up to small shareholders to decide whether they want to accept the offer.

Last night Instore's shares closed up 6 per cent at 6.4p.

Jonathan Grassi at KBC Peel Hunt, which is advising Crown Crest on the deal, said the aim is to return the business to profit after several years of losses.

"The group has seen three years of losses and at a time when many retail businesses are going bust, we consider this a reasonable offer for shareholders," he said.

He added that Crown Crest, which is run by cash & carry owner Aziz Tayub, will look at the structure of the board after gaining control of the group.

Michael Meade at Numis, which is advising Instore, said the deal does not stack up for other shareholders as the offer is at a 17.1 per cent discount to the closing price of 6.03p on July 2. As Tradegro had chosen not to pledge its whole 35 per cent stake showed that it believed the shares could pick up.

At the end of April Instore reported a £7.4m loss for the year to March 1.