William Baird, the former M&S supplier, has discovered overstated profits at Lowe Alpine, its outdoor leisurewear division, the Financial Times reported today.

The company said that the situation came to light when the division#;s managing and finance directors were replaced this summer. It could lead to a balance sheet reduction in the value of the assets by £1.3m ($1.86m).

"It is now also clear that Lowe Alpine will report lower profits in 2000 than previously expected," William Baird said in a statement to the Stock Exchange, adding that its prospects remained positive.

However, David Suddens, William Baird's chief executive, said: "It's not sufficient this year to oblige us to issue a profits warning."

The group bought Lowe Alpine for £13m ($18.6) from Phildrew Ventures. William Baird is combining the business with Tenson, its other outdoor sportswear operation. The group revealed the changes at Lowe Alpine as it agreed the management buy-out of its formal men's wear division for £19m ($27.2m) cash.

Baird Menswear Brands was bought by Peter Lucas, chairman and chief executive of BMB, with the support of Harold Tillman, the textile entrepreneur. Last year, BMB achieved sales of £84m ($120.4m) and operating profits of £2.6m ($3.7m). Net assets at December 31 were £27.6m. ($39.5m)

The outcome of discussions with Alchemy Partners, the venture capitalist, over a 75p a share offer is expected within the next two weeks, the Financial Times said.

William Baird, which is trying to sue Marks and Spencer for dropping it as a clothing supplier last year, said any offer would include an entitlement to a share of the proceeds if the litigation is successful.