Morrisons, UK’s fourth largest supermarket, has refused a $7.6 billion takeover proposal from US private equity firm Clayton, Dubilier & Rice.
Morrisons that have 118,000 staff, said the offer “significantly undervalues” the firm.
CD&R, where former Tesco boss Sir Terry Leahy is an advisor, confirmed it was considering a formal bid after weekend media speculation about its plans.
The US firm has previously made investments in the discount shop chain B&M, from which it made more than £1bn.
Morrisons said in a statement it had “assessed the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects”.
CD&R’s proposal, worth 230 pence a share, does not constitute a formal offer, and under UK takeover rules it has until 17 July to announce a firm intention to bid or walk away.
The move by CD&R, one of the biggest takeover firms in the world, would have been one of the most high profile of many bids for UK companies in the past year.
BBC business correspondent Katie Prescott said the flurry of takeover activity was being fueled by relatively low share prices of businesses in the UK compared to abroad and cheap money because of low interest rates.
CD&R has this year agreed a $3.8 billion takeover of UK healthcare group UDG, and a $425 million bid for the plumbing group Wolseley.