Coles on the market It

  • Business
  • Saturday, 24 Feb 2007

MELBOURNE: Australia's Coles Group Ltd put itself up for sale yesterday, saying it believed it was worth more than the A$18.2bil offer from private equity that it rejected just months ago. 

A sale of the entire group would be the largest in Australia's corporate history. 

Coles said it had received a number of informal approaches in recent weeks, but declined to say whether they were from other retailers or private equity interests, and said no firm offer had been made. 

A source familiar with the situation told Reuters that Coles had received approaches from three parties. 

The company said it would open its books to potential buyers and would consider a full sale or a break-up. The review would likely take three to six months, chairman Rick Allert told a briefing. 

“As a buyer you could take the whole thing and split it up and get optimal returns,” said Tyndall Investment Management analyst Craig Young. He said the larger rival Woolworths Ltd would likely be interested in the valuable Officeworks or Target chains. 

A break-up would be a reversal of Coles' own strategy, which was to fold the separate stores under the Coles banner. 

The retailer said yesterday sales had fallen short of expectations at its core supermarkets business, and it cut its earnings forecast for 2008 by 10%. 

Coles rejected two offers last year from a private equity consortium led by Kohlberg Kravis Roberts, the second of which was at A$15.25 a share. 

Allert said Coles would not consider any offer unless it was substantially above the A$15.25 per share offer from KKR. He said independent advice valued the company well above the figure. 

A source close to KKR said yesterday it was unlikely to take a second tilt at Coles. However, another source said the three recent approaches to Coles had included KKR. 

Coles' advisers also planned to limit the size of any future bidding consortia on concern that a large grouping would reduce the potential for a rival bid, citing a similar move by General Electric Co in the sale of its plastics unit. 

Other sources familiar with the situation said all the members of the previous bidding consortia were expected to take a look but would not be keen to pay more than A$15.25. 

The nine-member KKR-led consortium had included Carlyle Group, CVC, Texas Pacific Group and Blackstone Group. The first of the two bids had also included Bain Capital, Pacific Equity and Macquarie Bank. 

KKR is currently considering a joint bid with CVC and Blackstone Group for J. Sainsbury Plc, Britain's No. 3 supermarket. 

Credit rating agency Standard & Poor's said it may downgrade Coles' corporate credit ratings. 

“The more likely outcome is a leveraged buyout of Coles by private equity funds, which would likely result in a substantial deterioration in the group's credit quality,” S&P said. Moody's Investors Service also said it was reviewing its ratings. 

Coles last year sold off its Myer department store chain to Texas Pacific Group for A$1.4bil. It still has 700 supermarkets, 800 liquor stores and the Target, Kmart and Officeworks retail chains. 

It has been consistently losing market share in its core supermarkets business to Woolworths, which is expected to report a surge in first-half profit next week. 

In response to the KKR bid last year, Coles launched a five-year overhaul to ditch the Kmart and Bi-Lo supermarket brands, create superstores under the Coles banner, cut staff and boost earnings 35% by 2008. – Reuters  

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