Australian water producer Refresh Group has warned that Coca-Cola Amatil's acquisition of water cooler distribution firm Palm Springs could lead to job losses at the company and a "near-monopoly" in the sector.

Coke Amatil said on Monday (31 July) that one of its subsidiaries, Neverfail Springwater, has been approached by Palm Springs to buy the business, Australia's second-largest HOD (home and office water delivery) producer.

The two companies have agreed on a A$7.4m (US$5.7m) deal that is set to be sealed within three months.

However, Refresh, which is mulling its own bid for Palm Springs, said jobs at the company are under threat from the Coke Amatil takeover.

"Neverfail is only taking on the business and assets - there could be a lot of staff redundancies," Refresh managing director Henry Heng told just-drinks from Perth.

Heng said that "most of the staff would be retained" at Palm Springs should Refresh table an offer for the company.

Refresh, which uses steam-distilled methods to purify its water products, had been in informal talks with Palm Springs over a potential takeover before the Coke Amatil deal was announced.

The company is conducting due diligence on the loss-making Palm Springs business, Heng said. "We still believe that, even though the company is making losses, we can turn them around," he said.

Heng added that Coke Amatil's A$7.4m offer for Palm Springs would cover the company's debt and not leave much left in the form of shareholder returns.

"It means that they would be effectively giving away the business for free because of the liabilities. There would be A$500,000 to A$1m left to divide among the shareholders," he said.

Refresh chairman Leon Ivory said the company is "very keen" to acquire Palm Springs. "Their HOD business is certainly a good fit with our business and we're attracted by their customer base - they have 16,000 active customers," he said.

Ivory also said that Refresh has informed Palm Springs of its "conditional intention" to make an offer and then heard that the company has signed an exclusivity agreement with Coke Amatil. He added that Refresh would decide whether to launch a counter-bid within the "next few days".

Officials at Coke Amatil could not be reached for comment as just-drinks went to press.