Officeworks and Target seem to be the assets most interested buyers want in the break up of Coles Group.
Woolworths wants both, Harvey Norman has expressed interest but is well down the pecking order, while Wesfarmers would certainly like both but would probably settle for Officeworks.
Officeworks is the best performing part of Coles and has been a consistent stand out in a company whose sales and earnings record has been patchy.
Officeworks was started around 16 years ago at the old Coles Myer group and is now the market leader, jousting with the listed Dutch- owned, Corporate Express.
Officeworks sales are running at an annual rate of $1.2 billion with the retail earnings before interest and tax running around $65 million.
That makes it a similar size of CXP, which has a market cap of just under $1.2 billion.
And on that basis you’d have to wonder why, amid all the speculation about the fate of Officeworks, the likes of Woolies or HVN haven’t nibbled at Corporate Express.
Certainly the market has put them on a sort of unofficial ‘maybe’ bid for list with the shares up around 20 per cent in the past couple of months as the speculation has swirled around Coles and Officeworks.
CXP’s AGM was held in Sydney yesterday and was told that the company and its board are watching the fate of Coles and Officeworks closely.
Chairman Ian Pollard said Officeworks was likely to be split from Coles and bought by another firm.” We are watching that with interest and we are about to have two days of strategy discussions and that will be one of the matters discussed.”
Officeworks caters for the stationary needs of small to medium sized business, home office workers and students but Corporate Express, which focuses on the business market, says it does not consider Officeworks a direct threat to its operations.
Earlier this month the company said first quarter net profit had grown by 13 per cent to $15.63 million. (It reported a net profit of $67.6 million for calendar 2006, a rise of 2.4 per cent.)
Commenting on the outlook, CEO Grant Harrod said a stable macro-economic environment should be conducive to business growth.
The company would continue to roll out its Singlesource strategy, particularly where there was low market share.
The mid-market segment would remain a key focus, as would acquisition opportunities.
Mr Harrod said in his address to the meeting that “Our growth focus is driven by the following:
“The continued roll out of our single source strategy especially where we hold a low market share. We do not anticipate adding any new business line in the coming period, instead our focus is to capitalise on our portfolio and we will review expanding this in the next financial year.
“The mid market segment will continue to be a key focus and we currently enjoy solid growth as we are coming off a low base in this segment. Our business model is proving attractive to this sector who value consolidating their business product purchase into a single supplier relationship.
“We have a strong pipeline of acquisition opportunities and continue to hold discussions. Whilst the company undertook a significant off-market share buy back in the first quarter this year, we still maintain a strong balance sheet to support our acquisition strategy.”
Even though CXP isn’t in the retail space, it would be an easy thing for a trade buyer with ambitions to get into.
The attraction of Officeworks is that it is already in retail but if the one who misses out in the Coles break up still wants to move into this area, then CXP would be the logical target.
That’s if the Dutch parent, the just renamed Corporate Express, with a 59 per cent stake, doesn’t get there first.
CXP shares closed one cent up at $7.10.
