There are clear competition barriers to prevent Woolworths, Australia's largest retailer, taking any part in the proposed buy-out of rival Coles, according to a senior government official.

Ron Boswell, leader of the National Party in the Senate, publicly lodged his objections to any move from Woolworths to acquire any of Coles' businesses.

Boswell stated that there would be a "crystal-clear breach" of Australian competition law, which prevents companies from merging where there is likely to be, "a substantial lessening of competition in a substantial market".

Opposition from political quarters could well prove a wrench in the works for Woolworths, who confirmed its interest in Coles' Officeworks and Target businesses today (13 April).

Detailing his objections to a Woolworths-backed acquisition, Boswell said that a merger of the two groups would severely limit competition in the general merchandise sector. 

"There are reports that Woolworths sees no competition barriers to joining in a private equity buyout and selectively picking out the Target and Officeworks brands from Coles," Boswell said.

"Any argument that a Target buyout by Woolworths would not lessen competition in a market because of competition from department stores other than Big W simply won't wash. The general merchandise market in Australia consists virtually only of Target and Big W," the Senator commented.

Furthermore, Boswell said he was mistrustful that Woolworths would not exert influence over Coles' supermarket operations if it was part of a consortium that acquired the entire business.

"It is inconceivable that a Woolworths-backed private equity group buying Coles would be able to effectively 'split off' the parts of the business that Woolworths say they are interested in," the senator said. "Woolworths could never be seen as a silent partner in such a group. How could Woolworths guarantee that, as part of a private equity group, they would keep out of the Coles grocery market, out of Liquorland and out of Shell service stations?"

While Woolworths has registered its interest in Officeworks and Target, it has not confirmed any intention to join forces with private equity partners in order to buy the entire Coles group.

Coles, for its part, has indicated that it will consider proposals that would see either a total sale or a break-up of the group's three business units: supermarkets, Target and Officeworks. The company is also mulling the possibility of selling a substantial stake in its supermarket operations and remaining listed.

Two consortiums have officially tabled bids for Coles, Australia's second-largest retailer. One offer has come from a syndicate led by private equity group KKR and another from a consortium headed by local conglomerate Wesfarmers.