Are there are signs the reported interest of Woolworths in the assets of its struggling rival, Coles, is just that, interest and nothing more?
Speaking at the announcement of Woolworths third-quarter sales yesterday CEO, Michael Luscombe said that the retailer had signed an expression of interest in Coles general merchandise assets, which include Target and Officeworks.
But he made it clear the document did not legally commit Woolworths to making an offer.
”As I have said before, we do have the financial capacity to acquire Coles and other [assets].
”We have signed an expression of interest; but that is not legally binding. We have expressed interest in general merchandise assets.
“We have previously stated that Woolworths will look to grow its business, and that would include Coles,” Luscombe said.
And Woolies has yet to get clearance from the ACCC to participate, even though one is not needed. A smart company would sound out the regulator before nhopping in. Rejection can be cheap early on.
Woolworths says it is interested in Officeworks and Target.
To get hold of them WOW would have to bid in its own right or would have to be part of a consortium.
Woolies interest would have to run the scrutiny of the ACCC and of the board and an obviously sceptical former CEO.
So just who was former Woolworths CEO, Roger Corbett warning when he said at the weekend that the buyer of Coles Group could pay too much for the retailer in the current bidding war and it is clear some of its assets are in great distress?
Was it Wesfarmers or buyout group, KKR, or was it his replacement, Michael Luscombe, who has again confirmed an interest in Officeworks and Target.
Corbett who is a consultant to Woolies claimed on Sky Business News on Sunday that while it was early days, the current bidding climate had created a scenario where rational thought was tossed aside.
“Some of the assets in Coles Myer are clearly distressed and you get a competitive type of bidding process and that gets overrated and the due diligence process and careful rational thought gets underrated.
“It is a great danger in a process like this,” he said, “so very clearly there is a danger – a big danger – that people are overpaid for some of these assets”.
Corbett said the buyer should weigh things up carefully as there would be great difficulty in turning the Coles supermarkets around, adding “they are a long way behind in the technology stakes”.
“K-Mart is run down pretty badly, so a site is one thing, but rejuvenating a brand is another, so there are some great challenges,” Corbett said.
“But clearly, they have run down hill and that is very sad because there are many people in that Coles organisation who have been immensely loyal and who are long-serving people.
“I think the whole scenario is sad for lots of people.”
It must be point out though Mr Corbett is a master of saying one thing and doing another.
Asked about possible interest from the US retail giant Wal-Mart, Corbett, who sits on its board, said: “I think Wal-Mart has got its own plans in the world, and I wouldn’t imagine that there are any plans at this stage for Australia”.
That disclosure got no publicity in the media and I would have thought the same comment could be applied to Tesco of the UK: Coles would cost the best part of $US17 billion to buy or more and the British retailing giant has better things to do with its money. Tesco knows that if it did try and enter the Australian market it would face years of losses as Woolies and Metcash and Aldi made life difficult for it, with or without Coles.
Interestingly, Corbett said Wesfarmers had been a takeover-oriented company for some time but he was still surprised by its bid, which is an admission of how the WES bid flat-footed Woolworths.
WES has 12.8 per cent of Coles and the front position: its rivals will have to come from behind with a far superior offer to the $16.47 on the table, in cash and WES shares.
Luscombe has not ruled out joining the rival bidding consortium led by KKR, and there have been rumours of another bid by UK-based Tesco.
It’s not certain what excited the market less: the third quarter sales or the repeated interest in Coles.
Woolworths shares dropped 30 cents of Monday’s 82c gain to $28.78.
