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Australian retailer Woolworths has begun due diligence on takeover target Coles Group after its buyout proposal for The Warehouse was rejected by the Commerce Commission.
But Woolworths says it is still committed to growing its presence in New Zealand.
It is understood the food and liquor giant signed a confidentiality agreement and entered the Coles' data room at the weekend, with a special interest in its rival's general merchandise businesses.
Diversified industrial company Wesfarmers has launched a A$19.7 billion ($NZ22.31 billion) offer for Coles and is going through the Australian retailer's books.
The Woolworths news comes after a takeover proposal by the retailer for The Warehouse was knocked back on Friday by the Commerce Commission. Woolworths said it was disappointed with the decision, but it was still eager to grow its share of the New Zealand market.
"Woolworths is disappointed that its positive proposal to further invest in the NZ economy has been blocked at this stage by the regulator," the company said.
"However, it remains wholly committed to growing its presence in New Zealand both organically and by acquisition."
Woolworths said it expected the commission, which also rejected a rival proposal from New Zealand co-operative Foodstuffs, to publish its reasons in about a fortnight.
"The decision has just been handed down, so we are reviewing our options based on that," a Woolworths spokesperson said.
Foodstuffs, the owner of the New World, Pak'N' Save, and Four Square supermarkets, said it too was mulling its next step.
"We'll consider our options over the next few days and weeks. There is no hurry," Foodstuffs chief executive Tony Carter said from New York.
"Clearly we thought we had a robust application, that the regulator had a different view on that, which is their right. We still own 10 per cent of the company, so clearly we have an interest in the company."
Woolworths also has a 10 per cent blocking stake in the Warehouse.
The two supermarket operators, which together control all New Zealand's grocery market, made separate applications to buy the company. The decision was not entirely unexpected given it had been delayed by the commission four times in the six months since the applications were made.
CommSec retail analyst Grant Saligari said this would not discourage Woolworths, with the company already owning New Zealand's second largest grocer, Progressive Enterprises, the operator of the Foodtown, Woolworths and Countdown supermarket brands.
Woolworths did not say whether the decision would prompt it to refocus on Coles as an expansion target. It has previously expressed interest in Coles' Officeworks and Target businesses.
Shares in Coles took a tumble late last month after private equity raider Kohlberg Kravis Roberts abandoned a consortium planning a bid for the retailer, after two weeks of data room access.
-AAP
