Coles Myer, Australia’s second biggest retailer, has hired Deutsche Bank to evaluate a A$16 billion (£6.4bn) takeover approach from a consortium of private equity firms.

The retailer admitted yesterday that it had received the approach, but gave no details about the offer.

It said the offer was "highly conditional" adding that it would not go ahead without backing from the Coles’ board.

Rick Allert, the chairman of Coles, said that the company would respond in due course.

He did not name the members of consortium, but they are thought to include Kohlberg Kravis Roberts, Newbridge Capital, the Asia-Pacific investment arm of TPG-Newbridge, Carlyle Group and CVC.

Scott Marshall, an analyst at Shaw, the stockbroking firm, said: "Whatever it may be, the company is clearly saying it should be higher. What the board is saying is: ’We have a strategy and if you want to buy the company your strategy has to be better.’"

Mr Marshall said the market was anticipating a bid price of at least A$14 a share - a 5 per cent premium to Coles’ closing price yesterday.

Shares in Coles Myer closed down 0.5 per cent at A$13.33. They hit a record A$13.82 last Friday after Coles had flagged the approach.

Shares had slumped to a three-month low earlier in the month with investors giving a luke warm reaction to a Coles’ plan to boost its performance.

It is also thought that the Blackstone Group and Bain Capital are waiting in the wings to make an offer if the KKR-led bid is rejected.

Private equity funds have spent US$3.9 billion buying Australian companies so far this year, according to data compiler Dealogic, three times the total amount spent in 2005.

Any takeover of Coles by buy-out funds would be Australia’s biggest private equity transaction by far, topping KKR’s purchase earlier this year of two Brambles Industries businesses for A$1.83 billion.

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