Coles Group shareholders are facing the collapse of the$20 billion auction for their company after US private equity group, KKR joined another group, CVC, in the exit lounge.
KKR announced its departure yesterday, after more than a year of stalking the ailing retailer with two failed bids of its own in 2006.
CVC had earlier quit the buyout consortium at the weekend.
Both decisions came two weeks after the KKR led group had started its due diligence on the ailing retailer. Obviously what they saw didn't impress them.
KKR's decision leaves a team of four private equity groups left sniffing round Coles: Bain Capital, Blackstone Group, TPG and the Carlyle Group.(Caryle was in the losing group bidding for APN News and Media)
Coles shareholders shouldn't be surprised if others left in the group depart but TPG might stay as it owns Myer, which was sold off in 2005, and has been improving rapidly under the new ownership.
The KKR departure and that of CVC leaves the rival bidding group,led by Wesfarmers,in the box seat to win control of Coles. Wesfarmers already has 12.8 per cent stake ofColes, putting it in an almost unassailable position.
Watch now for Woolworths to step up its campaign to get into the bidding process, citing the importance of 'bidding tension' for Coles shareholders or some such rubbish. WOW will be more interested in what it can get, cheaply, than what Coles shareholders should get.
The departure of KKR will increase pressure on buyout group todeal with Woolworths in order to mount an competitive bid for Coles and match the WES offer.
Wesfarmers plans to use its own shares as consideration for up to 25 per cent of Coles, allowing accepting holders to roll over any capital gains tax liabilities that would result from selling their shares.
Woolworths has indicated interest in Target, Officeworks or Kmart as it trailed its coat to try and get the buyout group interested.
WOW could 'rent' its shares to the consortium so it could match the composition of the WES offer, in exchange for the parts of Coles it wanted.
However media reports say the consortium hasn't ruled out further changes in its composition.
They now have to trade off worries about the true financial state of Coles and the upside in the deal that will flow from their expertise.Can they earn their usual high rates of return with Coles looking sickly?
Wesfarmers joined the due diligence process on Friday. I wonder if they will be as concerned as KKR and CVC were?
The sale process is due to end by June 25, when the board is due to consider the offers. But a decision may not be made until December.
TPG was a central part of the failed $11.1 bid for Qantas which, unlike Coles, was a in solid operating shape.
Coles is obviously different but at least TPG has executives at Myer who understand the retail landscape in Australia.
Bill Wavish is a former Woolies chief financial officer and head of supermarkets, briefly, Bernie Brookes is a far more experienced supermarkets operator at WOW. Wavish is chairman of Myer, Brookes is CEO.
Could they be bound for new roles? Woolies would be unhappy because both departed after being told they would not succeed Roger Corbett as CEO.
Coles shares eased 7c yesterday to$17.38, just above the $17.25 Wesfarmers offered institutions last month but well underthe $17.95 peak two weeks ago. Wesfarmers fell 11c to $37.79 and Woolworths 1c to $27.34.
