London, Feb. 27 - Asda, the British grocer of Wal-Mart Stores Inc., could counterbid for J. Sainsbury should a private equity consortium launch an offer for Britain's number three supermarket owner, Citigroup analysts believe.
In a research note, Citigroup said Britain's second-largest grocer would be in a position to convince competition authorities it was a better match for Sainsbury than the private equity team currently considering a bid for the group.
"We maintain that the market is overly optimistic about a consortium bid, but if one comes, watch out for a higher offer from Asda," Citigroup analysts wrote in the note published after Monday's market close.
Sainsbury has been the subject of bid speculation since private equity firms CVC, Kohlberg Kravis Roberts and Blackstone Group said on Feb. 2 they were considering an offer. Texas Pacific Group later joined the consortium, according to sources familiar with the matter.
Any bid would be Europe's largest leveraged buyout at more than 10 billion pounds ($20 billion).
Asda Chief Executive Andy Bond last week at a newsconference declined to comment on talk he could be looking at a bid for Sainsbury. He did say he could consider acquiring convenience stores, an area where Sainsbury and Britain's number one retailer Tesco dominate.
Bankers have said they expect Wal-Mart and Asda have looked at Sainsbury because it is the latest realistic chance for it to catch up with Tesco, which is now double Asda's size.
Citigroup said it believed a bid was "still less likely than likely" and Asda would need to let the consortium bid first in order to "strengthen its argument" with regulators.
It could then argue a merger of the two grocers, with respectively about 16 percent of Britain's grocery market, would create up to $1 billion of synergies. The merged group would also create a heavyweight competitor to Tesco, with its 31 percent of the grocery market.
"The Competition Commission has stated it is worried that Tesco is so big that no competitor can emerge to challenge it. If the Commission fears a monopoly situation, it may settle for a duopoly," Citigroup wrote.
Sainsbury is trading at nearly 37 times 2007 estimated earnings on the bid speculation, compared with 20 times for Tesco and 18 times for the DJ Stoxx index of European retailers, Reuters Estimates showed.
Its stock was down 0.7 percent at 522-3/4 pence per share by 1050 GMT, outpeforming a 1.2 percent fall in the DJ Stoxx index of European retailers.