Convenience store operator Alldays is in talks to sell the business and return cash to shareholders.

The company, weighed down by £195 million of debt, said it was in discussions with an unnamed party about a deal under which investors would be offered 5p a share.

At 5p, Alldays would be worth £2.2 million but any deal would involve the bidder taking on the vast majority of the group's bank loans.

The Co-operative Group has been tipped as front-runner for the business but a spokes-man refused to comment on the speculation it was preparing a bid. Supermarket giants Tesco and Sainsbury's, which have both expanded aggressively into the convenience sector, distanced themselves from reports they might be interested.

Alldays' market value has tumbled in recent years with its share price plunging from more than 600p in June 1998 to a low this March of 4.75p.

Profits have dived after a plan to split the business into regional franchises failed and Alldays had to borrow £200 million to buy back the stores.

The group, which runs 637 outlets, including stores across Sussex, admitted in June there was no disguising the need for a financial restructuring and that it was continuing to pursue various options.

It said the takeover talks might or might not lead to a firm proposal but this would include a debt restructuring and result in shareholders receiving 5p a share.

Analysts said a take-over was likely to involve a suitor striking a deal with Royal Bank of Scotland to wipe out part of the debt.

The Co-op has focused on the convenience sector after moving away from direct competition with larger out-of-town supermarkets.