Crown Crest has offered 5p per share for Instore, via its subsidiary Seaham Investments.
Seaham Investments already owns around 30% of Instore and the deal would give them a majority stake of more than 50%.
Directors at Instore released a statement today which said: "We believe that the offer significantly undervalues Instore and recommend that Instore shareholders take no action whatsoever in relation to the offer."
Instore has around 300 stores under the Instore and Poundstretcher names. It reported sales of £296.8 million for the year to March 1, but made a loss after tax and exceptional items of £7.9m.