Well, Wesfarmers and its number crunching private equity partners go into the data room at Coles Myer today to begin due diligence on the floundering retail giant that will produce a bid well above $17.25 a share.
Its rival bidder, the group of buyout funds led by KKR, has been beavering away for a fortnight on the fine detail of the Coles business as it prepares an offer.
What is certain is the previous KKR offers of last year around $15 a share are well behind us.
The CGJ price is high because of failure, unlike Qantas where the share price is running higher now it has been freed from the failed bid from Macquarie Bank and its mates, and the reluctance of directors and management to be frank about the airline’s favourable outlook.
In the case of Coles the share price is up because of the failed revamp last year which was the main defence to the first two bids from KKR.
That failure was recognised in February and returned the retailer to play, which then saw Wesfarmers emerge with the front running as it snaffled a 12.8 per cent holding, gained some valuable partners, and said it would offer its shares to provide the hundreds of thousands of small Coles holders with capital gains tax roll over relief.
Media reports this week now have Woolworths sniffing around the floundering Kmart division of Coles with an eye to buying some, turning them into more if its Big W outlets, which stands a better chance of succeeding than trying to snaffle Officeworks, Target or both.
That seems to be a better idea because it would be based on a reading of the situation that Wesfarmers is the front runner.
Wesfarmers has said it wants Officeworks and Target with it owning 50 per cent of the supermarkets, liquor, petrol and Kmart operations and the private equity partners and Macquarie Bank owning the rest.
Apart from the mortally wounded Bi-Lo (ruined in the revamp strategy of CEO John Fletcher and the board), Kmart is the most worrying part of the business.
The revamp calls for Kmart to cut product lines and its policy of sales for sales sake and re-position itself. Kmart wasn’t a stellar performer before the revamp was launched at the end of 2006.
Woolies seems to be saying that it would take this ‘wounded’ asset off anyone’s hands, but especially Wesfarmers, in exchange for some nice cash (not too much) and a pat on the head for being so helpful.
Whether Wesfarmers falls for that line is problematic. Woolies is trying hard to get into the bidding process one way or another so it can benchmark its own operations at Big W against the likes of Kmart and Target (and maybe Officeworks).
Meanwhile the lingering timetable for the Coles sale is expected to produce yet another delay from the NZ Commerce Commission on whether Woolies or Kiwi rival, Foodstuffs, will be allowed to bid for The Warehouse Group, the country’s biggest retailer.
The Coles bids have to be in four weeks from today so an answer probably won’t come until early July, and then it might take a couple of months to complete, putting the deal over by late September.
Woolies and Foodstuffs, which between them control the NZ supermarket sector, have both applied to the Commission to take over The Warehouse, whose owner and a private equity group tried unsuccessfully to mount a buyout offer last year. That was frustrated by Woolies and Foodstuffs which picked up 10 per cent stakes in Warehouse apiece.
A decision was expected in January from the Commission, but it extended the deadline, with the latest one expiring today.
NZ reports say the Commission now wants to see who buys Coles in the break up.
Wesfarmers shares closed down 50c at $37.67 in yesterday’s sell-off. Woolies was treated even more roughly, losing 73c to $27.64 and Coles fell 11c to $17.49. That’s a price kept high by the impending bidding war.
