Woolworths, Australia's largest retailer, said yesterday it has talked with other parties about a possible joint offer for some assets of rival retailer Coles Group.
Woolworths told analysts it has lodged an expression of interest for Coles' general merchandise assets, the first time it has confirmed its interest.
So far, Coles has attracted an A$19.7 billion ($22.5 billion) takeover offer from conglomerate Wesfarmers, which faces a potential bidding war from a consortium of private-equity firms led by Kohlberg Kravis Roberts .
Woolworths chief executive Michael Luscombe told Reuters the expression of interest was on Woolworths' own behalf "at this stage". However, it could join with another group in the future.
"We have had and continue to have discussions with a variety of interested parties, but that's the extent of progress so far," Luscombe said.
Some market watchers have speculated that Woolworths could team up with KKR, although it would be prevented from acquiring Coles' core food and liquor business because of competition concerns.
Analysts have said Wesfarmers has a distinct advantage with shareholders since the scrip portion of its bid offers capital gains tax relief, which a cash-only bid by KKR could not match.
A joint bid between KKR and a listed Australian company such as Woolworths would be critical in helping overcome that disadvantage.
Luscombe said the company would advise shareholders "at the appropriate time" if it decided to conduct due diligence on Coles assets. He declined to specify whether Woolworths was interested in Coles' discount retailers Kmart and Target, or business supplies chain Officeworks, and saw no competition concerns.
Luscombe said Woolworths, which was also interested in New Zealand's Warehouse Group, could make more than one acquisition.
"We have room in our balance sheet to make the acquisitions that we would potentially like to make," he said.
Earlier, Woolworths reported an 8.8 per cent increase in third-quarter sales as it continued to gain market share in food and liquor at the expense of Coles.
Citigroup analysts expect the trend to continue, with much of the sales losses at Coles due to disgruntled shoppers shifting to the competition after the conversion of Bi-Lo stores to the Coles brand.
"It's a fair assumption. I'm sure we're getting some of that business," Luscombe said.
Citigroup estimates Coles has forgone A$350 million in sales from Bi-Lo, and that Woolworths has picked up about 45 per cent of those sales.
Woolworths said its sales for the 13 weeks to April 1 rose to A$10.56 billion from A$9.71 billion a year earlier, and it maintained its forecast for full-year sales growth of between 8 per cent and 12 per cent.
Woolworths' sales in the core Australian food and liquor business rose 8.3 per cent and comparable store sales were up 6.6 per cent.
In general merchandise, which includes the Big W discount chain, total sales rose 16.5 per cent. Comparable Big W sales, after adjusting for the timing of Easter, were up 6 per cent, far stronger than the recent performance by main rival Kmart.
Woolworths said its sales from continuing operations for the nine-month period were up 13.5 per cent from a year earlier.