The battle for control of struggling retailer, Coles Group, has moved very quickly to a decisive stage with Perth-based Wesfarmers teaming up with private equity group, Pacific Equity Partners, and possibly others,to launch a raid on the retailer aimed at securing front seat at any negotiating table.
Wesfarmers confirmed this morning that it had emerged as the largest shareholder in Coles.
“Wesfarmers announces it has voting power over 11.3 per cent of Coles Group shares and has acquired a relevant interest in 126.7 million Coles shares.
“Wesfarmers is at this time pursuing discussions with Coles.
“Wesfarmers is making an application for its shares to go into a trading halt.
“A further announcement will be made following the discussions.”
Earlier media reports said Wesfarmers was working with PEP in its raid on the retailer.
Major shareholder, Premier Investments said this morning it had sold 2.9% of Coles, part of its holding at $16.47 and the remainder (3%) will be sold at the same price under separate agreements if shareholder approval is needed.
Premier did not name the buyer but the media this morning said it was Wesfarmers.
The media reports claimed the partners were “poised to launch a $20 billion hostile takeover for the disintegrating Coles Group.”
Other reports also said an immediate bid may not be made with Wesfarmers buying a seat at the table with an eye to grabbing Officeworks.
Any bid at $16.47 or morewould trump the $18 billion ($15.25 a share) offer from KKR last year.
The move by Wesfarmers (which owns the huge Bunnings Warehouse chain) and PEP would provide an “Australian solution” to Coles where there had been little sign of local interest last week after the poor interim profit figures.
The move by Wesfarmers is likely to force other bidding groups to show there hand, though stories in one paper that theFrench giant Carrefour Group was also considering an offer shouldn’t be taken seriously as Carrefour is wracked by management and shareholder tensions following a raid on its share register last month.
The move by Wesfarmers and PEP will put the acid on KKR and other overseas private equity groups who normally don’t enter into contested, possibly hostile stockmarket raids on target companies.
Also offers from retail giants like Tesco of the UK and Wal-Mart of the US, would have to be ruled out simply because WES has moved so early and so quickly to build a foothold in Coles share register.
The media reports said Wesfarmers bought around 3.3 per cent of Coles in two trades at $16.47, done by Macquarie and is believed to hold agreements with institutional shareholders which lock up 10 per cent of the company.
Coles shares yesterday closed 14c lower at $16.11.
Premier could have up to $1.1 billion in cash to play with after its sales are completed to Wesfarmers.
Coles threw in the towel in February after revealing that sales at Kmart, Bi-Lo and Coles supermarkets had stagnated or fallen after the Everyday Needs revamp was revealed late last year.
The board decided to put the company up for sale, a move confirmed at last week’s profit briefing in Melbourne.
PEP, meanwhile, has been particularly busy over the past year as one of the most active private equity players in Australasia and only yesterday it won a buyout deal for debt collection group Veda Advantage with Merrill Lynch Private Equity.
It has a large retail portfolio, including Godfrey’s the vacuum cleaner retailer.
It tried to take The Warehouse Group, New Zealand’s largest retailer, private with the founder, Steve Trindall and only last week it made a second go to buy travel agency Flight Centre with the management.
PEP also has significant interests in NZ in book retailing (Angus & Robertson Whitcoulls), poultry (Tegel), alcohol (Independent Liquor), Griffin Foods (NZ’s leading snackfoods company)and Collins Foods, a fast food operator (KFC, Sizzler here and around the world).
There is potential for some interesting conflicts of interest to be managed there (Independent Liquor is the market leader in Ready To Drink alcoholic drinks in Australasia).
So both Wesfarmers and PEP have considerable retail experience in their own right, which gives them a head start on other bidders.
If there is a ‘hostile’ bid, it will very quickly have to turn friendly because the Coles share register is dominated by small shareholders and a board OK will be vital for success.
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The reports said the shares were bought shares last night at $16.47 on behalf of Wesfarmers and PEP which values the retailer at well over $19 billion.
