Fresh foods group Geest today pledged to open its books after receiving a revised £503 million takeover approach.

Geest said it was allowing Bakkavor - an Icelandic convenience foods company that produces ready meals and dips for UK supermarkets - to conduct due diligence on the basis of 655p a share plus a special interim dividend of 7p.

Details were announced after the close of trading today when shares in Peterborough-based Geest stood at 615p.

Geest revealed on December 9 that it had knocked back a bid approach from Bakkavor but pledged to continue takeover talks to establish whether a better proposal would be tabled.

Chairman Sir John Banham said today: "At this value in cash, Bakkavor's indicative offer allows us to move into due diligence and continue our discussions, which have been both business-like and friendly."

Bakkavor built its stake in Geest in May and June, but said it was only interested in a "long-term strategic investment" rather than an outright takeover at that time.

It was prevented from buying a larger stake in the company for six months but this lock-in period recently expired, fuelling speculation that it was preparing a bid.

Agust Gudmundsson, executive chairman of Bakkavor, said: "It is very encouraging that we have reached this stage which allows us to enter into more detailed discussions which we hope will lead to a positive outcome."

Bakkavor, which employs 2,500 staff in the UK at three factories in London and a facility in Birmingham, expects to complete due diligence during February.

It generates £138 million in annual sales to customers including Tesco, Marks & Spencer, Waitrose, Sainsbury's, Somerfield and Morrisons.

But its performance is dwarfed by that of Geest which reported sales of £868 million in the 53 weeks to January 3.

Both companies operate in the same sector with ready-made salads, pasta, pizzas and desserts forming the core products manufactured by Geest.

Geest employs more than 10,000 staff and has factories around the UK, including Spalding in Lincolnshire and Selby in North Yorkshire.

In September, it said trading had suffered from the price war in the food retail sector and the aftermath of the takeover of Safeway by Morrisons.

Supermarkets have pressured suppliers into cutting prices and this has squeezed margins. Earlier this year, Marks & Spencer renegotiated deals with its suppliers to save more than £100 million a year.

Geest said that average selling prices to retailers fell by 2% in the six months to July 3 and profits declined by 16% to £13.3 million.