Celesio, the German owner of the Lloyds pharmacy chain, is exploring a possible offer to buy rival Alliance Boots, people familiar with the situation said on Monday.
Celesio is working with financial adviser NM Rothschild to sound out private equity firms to trump a 10-billion-pound ($19.7 billion) approach by Alliance Boots deputy chairman Stefano Pessina and private equity firm Kohlberg Kravis Roberts, the sources said.
Celesio's plan would be to split up the company, they added.
"We do not comment on market speculation," a Celesio spokesman said. Nobody was immediately available to comment at Rothschild.
Analysts said an acquisition of Alliance Boots by Celesio would likely face antitrust issues because the two companies are already the leading drug traders in Britain.
Alliance Boots opened its books to Pessina and KKR on Friday after they raised their proposed bid by 4% to 1,040 pence a share.
Another source familiar with the matter said the process was likely to take three to four weeks and, if no problems emerged, the Alliance Boots board was likely to back the improved offer.
The Times reported on Monday that Celesio had approached firms including Blackstone, Texas Pacific Group, CVC Capital Partners, Cinven and Permira.
Celesio Chief Executive Fritz Oesterle said in March the group planned to make acquisitions in its service business this year and it could benefit from a takeover of Alliance Boots if the health and beauty retailer divests businesses or pharmacies.
The Sunday Times said a private equity group could welcome the opportunity to tie up with Celesio because it would be able to extract substantial synergies from any takeover.
Shares in Celesio, which has a market capitalization of around 8 billion euros, were 0.2% down at 46.85 euros, while Alliance Boots shares were 0.2% higher at 1,028 pence.