Argos has rejected a hostile £1.6 billion sterling cash bid by Great Universal Stores (GUS). Yesterday's bid was rejected almost immediately by the British catalogue retailer, which said it failed to recognise the strategic value of the company, its track record or its prospects. Argos has issued three profits warnings in just over a year.

Analysts speculated that Argos would now seek a white knight from abroad, such as Otto Versand of Germany or Pinault Primtemps of France, which are known to be interested in entering the British mail order market.

Lord Wolfson of Sunningdale, GUS chairman, said yesterday he believed his offer of 570p a share was a "full and fair price", given the steady decline in the share price over the last year from a high of 772p.

Lord Wolfson said he believed GUS could offer substantial benefits to Argos. "It brings quickly and economically the home shopping call centre and delivery infrastructure which Argos's recent trading statement identified it would build," he said.

Lord Wolfson denied that if successful, he had any intention of phasing out Argos's high street chain.

Meanwhile, GUS's mail order rivals were calling on the Office of Fair Trading to refer the proposed acquisition to the monopolies and mergers commission.

Although GUS would have net debt for the first time in more than 40 years, both businesses were highly cash generative. Interest cover would still be comfortable at between seven and nine times, said one analyst.

GUS's debt-financed bid for Argos will mark yet another break with the firm's deeply conservative past, seen since Lord Wolfson took charge in 1996.

For years the highly secretive retailer churned out solid profits from its mail order, financial services, and retail businesses, which include Burberrys, maker of the classic raincoat.

But things seemed set to change in the early 1990s when the firm swept away its outdated share structure, paving the way for a more adventurous corporate strategy.

There have been a string of acquisitions, including US credit information group Experian in 1996 for $1.7 billion (£1.24 billion) and a property joint venture with British Land Plc.

The group is also talking to a number of television companies, exploring the possibilities of remote shopping.