For the moment we can add the sale of Coles Group to the list of life’s certainties: death and taxes.
Following statements from Coles and Wesfarmers yesterday we are now within sight of a decision on the bids from Wesfarmers and its group and KKR by late June- early July.
Coles issued a statement to the market about the “Ownership Review Process” after the third quarter sales figures update showed a very poor result.
“Coles Group (Coles) advises that Coles and the Wesfarmers Consortium have agreed the terms of a confidentiality deed pursuant to which the Wesfarmers Consortium will be given access to due diligence materials regarding Coles.
“The Wesfarmers Consortium will commence its data room investigations on Friday week, 25 May 2007. The Coles Board is committed to ensuring a full, competitive auction process and equal treatment to all parties participating in the process.
“Consistent with that commitment, the company has confirmed with bidders that the company will seek final binding bids from all parties in the week beginning Monday 25 June 2007 (the Due Date).
“If a party makes a ‘pre-emptive’ bid before that date, Coles will notify all other bidders of this bid immediately and will only consider such an offer on the Due Date (or such earlier date that all other bidders have confirmed that they will not be submitting on the Due Date a binding bid that is competitive with the pre-emptive bid).
“Consequently, under the timetable for the process, the Wesfarmers Consortium will have a minimum of four weeks’ due diligence.”
The sale process is now down to US buyout major, KKR and its associates and Wesfarmers and its group of associated funds, plus Macquarie Bank.
KKR has its due diligence underway, Wesfarmers has yet to start but it does have 12.8 per cent of the retailer and an indicative $17.25 offer to major holders, to kick off the bidding process (it made a bid at $16.47a share).
The preference shown to KKR upset Wesfarmers, which has its other businesses to worry about, especially coal where sales and earnings from the Curragh coking coal mine in Queensland are a problem.
WES asked for assurances from Coles and yesterday issued this statement after the Coles statement on the sale process was released:
“Wesfarmers and its consortium partners in the proposal to acquire Coles Group Limited welcome assurances given today by Coles about the conduct of that company’s Ownership Review Process.
“The Wesfarmers consortium is pleased also that agreement has been reached on a confidentiality deed allowing it to begin due diligence on 25 May. Wesfarmers Managing Director Richard Goyder said it was particularly important that Coles had reaffirmed its commitment to ensuring equal treatment for all participants.
“The assurance Coles has given to preserve the rights of parties not yet in the data room is essential to retaining confidence in the fairness of the process,” he said.
“We look forward to beginning due diligence at the end of next week and to developing a proposition to put to Coles based on the indicative proposal we announced on 3 April.
“That proposal has the advantage of speed of implementation in that it is for the whole of the company, is free of Australian regulatory requirements and, additionally, would ensure that the Coles businesses remain majority Australian owned with the opportunity for Coles existing shareholders to retain an interest in those businesses.”
These statements are a reminder of just why Coles is on the auction block.
The company is struggling, going backwards.
The third quarter sales figures were just terrible and an indictment of a slow moving, poor thinking management with no tactical or strategic retailing skills.
If there had not been a sale process underway the third quarter sales report would have seen the share price down under $10 instead of well over $17 and climbing.
In all reality the sales figures for the third quarter showed, with the exception of Officeworks and perhaps Target and the Coles Express petrol business, the company is in dire need of cleaning out: on reflection that probably should include Target.
Group sales rose 0.6 per cent in the quarter to $8.41 billion with Food and Liquor up 3.2 per cent and 0.8 per cent on a comparable basis.
That is so far behind the competition that it must be embarrassing for the likes of CEO John Fletcher to be talking about the performance, but with more than $50 million coming his way I suppose he’s do anything to get the sale happening.
Australian Bureau of Statistics retail sales figures show that in the year to March there was growth of 8.2 per cent, across the entire industry, with food and liquor doing roughly the same.
Woolworths figures showed 8 per cent plus across the group and around the same in food and liquor. David Jones, admittedly in a different retail sector, showed sales growth of 8.5 per cent for the third quarter.
If they can get it right (and others, with the exception of fashion wear groups which have been hit by the warm autumn, as were Coles’ sales in this area in Kmart and Target) why can’t Coles.
Poor execution of a blighted strategy.
Woolworths has so far been locked out of the process, despite its ‘friends’ suggesting in the media that it would join with Tesco of the UK (staying at home); maybe Wal Mart (staying in the US), KKR (nothing there yet ) and Wesfarmers (Oh, really?).
Woolies can’t bid by itself because of the presence of Coles supermarkets, liquor and petrol business. Woolies has to find a buyer for those so it can keep Officeworks and target but up till now no one has obliged.
That’s why former Woolies CEO, Roger Corbett was blathering on in the Australian newspaper Thursday about the great difficulties he saw for any buyer of Coles, especially because Woolies was so far ahead. Rememb
