Asda has emerged as the frontrunner in the race to buy high-street grocery chain Somerfield, The Grocer has learnt.
Somerfield hired the bank Citigroup this week after receiving "some unsolicited approaches", according to a source close to the retailer.
Three companies are believed to have signalled their interest - Asda, Morrisons and Sainsbury's - although there is speculation that others, including the Co-operative Group and Marks & Spencer, could also be keen on making a bid.
However, according to the source: "Asda look most likely at the moment."
Somerfield is owned by a consortium made up of private equity groups Apax and Barclays Capital and property tycoon Robert Tchenguiz, who put up £500m in a £1.8bn deal in October 2005. It is thought they want £2bn-£2.5bn for the chain.
Asda refused to comment on whether it had made a bid. However, experts believe it would be eager to get its hands on Somerfield because of its substantial high-street presence and portfolio of smaller stores.
"It's a logical move because if you look at Asda's portfolio, it has very little under 40,000 sq ft and has a gap in small formats," he said. "This deal would also allow it to treble its store numbers."
Somerfield boasts a portfolio of 908 stores, 90% of which are under 15,000 sq ft and 70% of which are under 10,000 sq ft. Some 149 outlets are in petrol station forecourt locations.
Asda has just 347 stores in the UK compared with Tesco's 1,988, of which 811 are Express stores. If Asda and Somerfield were combined, the enlarged company would have 1,255 stores. The deal would also enable Asda to close the gap on market leader Tesco in terms of market share.
Somerfield has a 3.7% market share, according to the TNS Worldpanel. Combined with Asda's 16.7%, a merger would create a retailer with 20.4% of grocery sales. With Tesco on 31.5% and Sainsbury's on 16.4%, the deal would also create a clear number two player in the sector.
Whoever bought Somerfield would also gain a stronger foothold in parts of Scotland and the West Country, where the chain is particularly strong, analysis by CACI shows.
Any deal would automatically attract the scrutiny of the OFT, which could refer it to the Competition Commission in the light of the fact its groceries inquiry is still under way.
One analyst said he did not expect any major competition-related difficulties, however. "The decision when Morrisons and Safeway merged was that the commission wanted to create a big four, so it won't impact on that criteria. I imagine there would be selective store disposals, however."
Rumours Somerfield was to be sold first surfaced in March last year, when chairman John Lovering said he was waiting for someone to come up with "a big enough bag of money" to buy it.