UPDATE 1-Suitors eye higher bid for food group Iglo-sources

* BC/Blackstone 2.5 bln euro bid rejected as too low-sources

* Permira seeks 2.8 billion euros for Iglo - sources

* Permira considering dividend recapitalisation - sources

By Simon Meads

LONDON, June 25 (Reuters) - Private equity groups Blackstone and BC Partners are working on a higher offer for frozen foods maker Iglo Group after rival Permira rejected their 2.5 billion euro ($3.1 billion) bid as too low, people familiar with the situation said.

Blackstone and BC, the last two bidders in the hunt for the Birds Eye fish fingers maker, teamed up last week to table a final bid for the company.

By joining forces for what would be Europe's largest private equity buyout of the year, the two firms were seeking to share the large equity investment and put pressure on Permira to accept a lower price.

But Permira rejected the offer as too low, people familiar with the sale said, and is now considering a debt refinancing to raise funds that would allow it to pay itself a dividend, those people added.

While that would allow Permira to return some money to its investors as it looks to raise capital for its fifth buyout fund, Iglo may yet be sold if Blackstone and BC come back with a better offer.

Permira put the business up for sale earlier this year looking for at least 2.8 billion euros.

That would equate to about eight times Iglo's projected earnings before interest, tax, depreciation and amortisation of about 350 million euros for 2012, and allow Permira to about double its investment, bankers have said.

Permira bought the business from Unilever in 2006 for 1.7 billion euros and then bolted on another frozen food group, Findus Italy, in 2010.

Permira is on the fundraising trail at a time when many private equity firms are aiming to clear the decks of mature companies.

It is looking to raise some 6.5 billion euros from investors for new deals, but is under no pressure to sell having already realised 2.7 billion euros over the last 12 months, a person said.

The group has disposed of its holdings in various businesses including NDS, maker of technology for BSkyB set-top boxes, animal nutrition group Provimi and Danish telecoms company TDC.

BC Partners, Blackstone, Permira and Iglo Group declined to comment.