SPECULATION in the City was mounting last night that van hire group Northgate was planning to turn down an estimated £800m takeover approach.

Several major banks sold small amounts of shares as rumours circulated that Northgate's larger shareholders believed the bid undervalued the company.

But other investors say that Northgate's downbeat trading statement to its annual meeting last week - warning that UK competitive pressures were causing a slowdown - was likely to put potential investors off in the short-term.

However, its operations in Spain, where it is the market leader, have bolstered UK trading.

Darlington-based Northgate confirmed last month that it was in talks with a mystery suitor, widely believed to be financier Guy Hands, through his investment company Terra Firma.

The offer was reported to be for £12.50 a share, valuing the company at more than £800m.

Northgate told shareholders at its annual meeting that takeover talks were continuing.

A spokesman for the company said last night that no update was planned for the near future on the talks.

But he said some institutional investors were selling small amounts of shares while the price was still high, and hanging on to their major stakes for the long-term.

Northgate is likely to be contacting its institutional shareholders, which include JP Morgan and Standard Life, to gather views on whether they would be prepared to cash in stock at the offer price, or if they would be more prepared to grow the share price as business improves.

Once that process is complete, Northgate directors will take a decision on any offer.

Anthony Platts, of Tees Valley investment managers Wise Speke, said: "It has gone a little bit quiet since the original approach.

"The talk was that the offer was £12.50 and the share price has been slipping away since then because there is no certainty the bid will go through.

"Northgate's Spain operations have been doing well so there is optimism for the future there. As far as the directors of Northgate are concerned, they may feel that the offer doesn't rate the company highly enough."

Northgate's share price peaked on September 19 at 1245p, up from 1034p before it confirmed takeover talks.

National newspapers have also reported that Mr Hands wants to buy the vehicle leasing business at Sunderland transport group Arriva, which would be combined with Northgate if both bids were successful.

He has not commented on the speculation, but Arriva has confirmed it would consider selling its leasing business for the right price.

Northgate started from founder Alan Noble's home, in Hurworth, near Darlington, in 1981. It is now the market leader in the UK and Spain, with 2,000 employees, including 350 in the North-East.

Yesterday's shares closed at 1122p