assets and may form part of a wider consortium to bid for the entire group, two people close to the bidding process told Dow Jones Newswires Wednesday. The A$20 billion-plus (US$16.5 billion) sale has already attracted two consortiums led by U.S. buyout group Kohlberg Kravis Roberts & Co. and local industrial conglomerate Wesfarmers Ltd. (WES.AU : WES.AU News , chart , profile , more Last: 0.000.000.00%
and is shaping up to be the country's largest ever takeover. The people with knowledge of the deal said Woolworths is weighing up its options in trying to secure Coles' stationery and business furniture chain, Officeworks and department store group Target. They say it has also been approached by other players to bid for the whole company. "A number of private equity firms have approached Woolworths including KKR," one person said. Other private equity groups not yet formally aligned but rumored to be have shown interest in Coles include CCMP Capital Asia, Cerberus Capital and Apax Partners. U.K. retailer Tesco PLC is also expected to take an interest in the auction process, but a spokesman for Coles declined to name other interested parties. Coles, which was put up for sale in February after a profit downgrade, is expected to open a data room for potential buyers this week. Australia's largest furniture and electrical retailer Harvey Norman Ltd. (HVN.AU : HVN.AU also threw its hat in the ring with chairman Gerry Harvey confirming it will seek to do due diligence on Officeworks. Speculation of an impending bidding war pushed Coles shares higher again Wednesday. The stock closed at A$17.38, up 5 cents, just shy of Tuesday's record A$17.42 and well above Wesfarmers' offer last week of A$16.47 a share. Analysts expect a successful bidder will have to partner with an Australian listed company to outbid Wesfarmers, considered the current front runner after securing a strategic 12.8% stake. Wesfarmers, which is bidding in a consortium including Australia's Macquarie Bank Ltd. and Europe's Permira Holdings Ltd, is offering Coles shareholders the chance to retain a stake in a listed company. It is also pushing the line that its offer will keep Coles, the country's second biggest retailer, in Australian hands. A scrip component will also offer taxation benefits not available to an all-cash offer from a buyout consortium. Analysts estimate this adds around A$1.50 a share in value to Wesfarmers' bid. Harvey Norman, along with Woolworths, are considered likely candidates to partner buyout groups. But Gerry Harvey wouldn't comment when asked by Dow Jones Newswires whether he had been approached to join another consortium. A spokeswoman for Woolworths declined to comment. One hurdle to a possible joint bid between Woolworths and the KKR consortium is that Coles has stipulated only six members in any one consortium to prevent rival groups banding together. KKR's consortium already includes six players TPG, Carlyle Group, CVC Asia Pacific Ltd., Blackstone Group LP and Bain Capital LLC. However, one of the people close to the bidding process said the structure of the syndicate could still change, noting "rumors a couple of the consortium members are getting a bit nervous about price, which may open up a gap." Any decision on whether to drop out of the bidding process is unlikely to made until the parties have undertaken due diligence. The KKR consortium has been working on a tilt at Coles for some time; two offers for the retailer were rejected last year. The last one in October was priced at A$15.25 a share. A spokesman for KKR group said "it won't be commenting on any of its options at this stage". Any deal involving Woolworths would also be dependent on approval from the Australian Competition and Consumer Commission. Woolworths and Coles operate in a virtual duopoly and are estimated to reap about three quarters of every dollar spent in supermarkets in Australia. is also being considered as a potential partner for Woolworths, the people close to the deal said. However, it is also likely to come up against competition issues. Analysts expect a rival consortium to Wesfarmers will need to pay at least A$17.50 a share in cash, unless it combines with a local company. Wesfarmers' offer also includes a 19.5 cents dividend. Meanwhile, Merrill Lynch analyst David Errington said in research report Wesfarmers' proposal for Coles doesn't stack up financially. Errington said Wesfarmers is offering, in effect, "nearly A$21 billion for a business that is currently generating earnings before interest and taxes around A$1.2 billion." He added investors that believe Coles Group can be turned around, because Woolworths is performing at a far superior level, are making a mistake. "For Coles Group to make ground on Woolworths, we believe that it will require an acquirer with plenty of skill, plenty of time, and plenty of money," he said. Coles is being advised by Deutsche Bank AG and boutique investment bank Carnegie Wylie & Co. Wesfarmers is being advised by Gresham Advisory Partners and Macquarie Bank. "
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