The US consortium bidding for United Biscuits says it is upping its offer to at least £1.2bn ($1.92bn) after reports that its first bid had been trumped by an alliance of European firms.

The European group, Finalrealm, is refusing to say more than that it is in talks with United Biscuits, but is understood to have offered 1.9bn euros - equivalent to £1.2bn, or 255 pence a share.

Finalrealm is made up of venture capital group Cinven, French private equity firm PIA (an affiliate of BNP-Paribas), and DB Capital Partners (an affiliate of Deutsche Bank).

The American bidder, Burlington Biscuits (a takeover vehicle set up by Dallas-based investment group Hicks Muse Tate & Furst and US foods giant Nabisco), had offered £1.161bn for United Biscuits on Tuesday - equivalent to 245p a share.

Burlington says it has been buying up shares in UB at 254p and has already amassed a 29.99% stake in the company.

The prospect of a bidding war lifted UB's shares, which closed on Wednesday up 5.5p at 260p.

Underperforming

The battle to win control of UB, which makes the well-known Penguin and McVitie's brands as well as KP snacks, began in October when the company let it be known it was struggling and was open to offers.

On Tuesday, the board at UB agreed Burlington's original bid.

But then Finalrealm revealed it was "actively considering whether to make a higher cash offer".

UB's woes have largely been the result of supermarket price wars, which have put pressure on its margins. It concluded that it needed to be part of a larger concern to be able to compete.

If successful in its bid, it is understood Finalrealm would sell some of UB's assets to Groupe Danone, France's largest food group.

When Burlington made its original offer, it said that after the takeover, Nabisco would merge its own European and Middle Eastern operations with UB, creating a new firm called Burlington Biscuits Holdings, in exchange for a 23% stake in the new company.

Nabisco would also buy from Burlington UB's interests in China, Hong Kong and Taiwan.

UB chairman Sir Gordon Hourston said: "A sale of the business, at an appropriate price, provides the best route forward for shareholders."

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United Biscuits describes itself as an international food group with operations in 22 countries, employing 22,500 people around the world - about 19,000 of those in the UK.

It says international biscuit sales are approaching £1bn and that its UK snacks business boasts sales worth more than £300m. It also says it is the fourth-largest biscuit company in the world and number two in Europe.

UB has suffered the consequences of a cut-throat price war among UK food retailers, and the bid price is well below the takeover price range of 260p to 270p a share industry sources were talking about a month ago.