Interests linked to billionaire rag trader Solomon Lew are understood to be behind the purchases of a 10 per cent stake in Myer.

Potential buyers from South Africa have also been rumoured to be interested, possibly as a result of Myer's rival David Jones being bought out by South African retailer Woolworths in 2014.

In that deal, Mr Lew - through intermediary Pershing Securities - snapped up a 10 per cent blocking stake in David Jones ahead of Woolworths' takeover offer for the department store owner. He later sold into the takeover offer after Woolworths agreed to buy out his minority stake in Country Road.

Fuelling speculation that Mr Lew was behind the purchase of the stake in Myer was Pershing's purchase of 195 million shares in Myer on Monday.

A scrip or scrip plus cash deal could be on the cards with shares in Mr Lew's listed retailer Premier Investments worth about nine or 10 times the value of Myer's shares.

Premier Investments has more than enough cash resources to take over Myer according to sources, with Premier Investments holding around $300 million in cash. It could also sell its stake in Breville to partially fund the purchase.

Another foreign buyer or a private equity player could also be sniffing around the company, according to sources.

The market for Myer's shares began bubbling in afternoon trade on Monday after a block of 81.7 million shares crossed for $1.15 apiece, according to Bloomberg data.

The stock closed a $1.26 after significant trading in the company's shares pushing the company's market capitalisation to nearly $1.3 billion.

A spokeswoman for Mr Lew declined to comment. A spokesman for Myer did not return calls.

Myer recently delivered a solid first half result in March with its profits up 5.3 per cent to $62.8 million. The company is widely tipped to report its first lift in full-year profit since 2010 in September.

Sources said Myer is attractive to buyers due to its long store leases and relatively low rent on a per square metre basis.

On this basis, a buyer for the entirety of the company may look to use Myer's store network to leverage its brands and increase its footprint in Australia.

However the purchase also comes at a time when apparel retailers in Australia are struggling with a clutch of mid tier groups going under in recent months.

Market watchers said it was also possible that the purchaser of the stake will be passive in their investment, taking a wait-and-see approach to the outcome of Myer chief executive Richard Umbers' strategy to lift sales and rationalise stores.

Myer is one of the most shorted stocks on the Australian Securities Exchange with 15 per cent of its free float shares shorted as of March 23. This was an improvement on the 18 per cent of the company's free float shares that were shorted in late February.

"This is one of the most heavily shorted stocks on the market, and it's started a scramble," said CMC Markets chief market strategist Michael McCarthy told Bloomberg.

"This is a real pain for short sellers."

Myer was founded in 1900 by Sidney Myer and his brother Elcon Myer. The brothers' first store was in Bendigo.

Within a few decades the family had created a large network of department stores.