Coles board to weigh up sale options
FOUR months after Coles directors officially put the retailer up for sale, the board will finally meet via telephone hook-up this morning to consider offers for the company.
Investors propelled shares in Wesfarmers to a record high on expectation the Perth company would win the auction.
Only one bid for the entire group from Wesfarmers was expected by the board’s 9am deadline this morning.
The directors were also expected to consider an offer from rival Woolworths, which was set to lodge two mutually exclusive bids for Officeworks and Target, and Officeworks and Kmart.
It is believed Woolworths’ offer for these general merchandise assets was to be at least $1 billion above any other bidder.
However, Wesfarmers remains in the box seat to win the auction, as Coles investors continued to drive the stock lower than the $16.47 Wesfarmers has already paid to acquire a 12.8 per cent stake in the supermarkets giant.
The stock slipped 3 yesterday to close at $16.11 as a massive 26.4 million shares changed hands, compared with the average daily volume of 5.8 million.
In contrast, shares in Wesfarmers, which emerged as a potential suitor for Coles in April after a dramatic raid on the retailers’ share register, soared more than 2 per cent, or 93, to a record high of $45.73.
A bid from the Wesfarmers’ consortium, which includes Macquarie Bank, Permira and Pacific Equity Partners, will include at least 40 per cent scrip. Wesfarmers is also considering allowing Coles shareholders to exchange up to 750 of their shares for stock in Wesfarmers.
The attraction in that strategy is that the 200,000 people who own 750 or fewer Coles shares would be able to defer capital gains tax payments for their Coles holding.
CommSec retail analyst Grant Saligari said that despite the decrease in the Coles share price, Wesfarmers would need to put in a bid of more than $16.47 to be recommended by Coles’ board.
“A bid closer to $17 would probably get them over the line,” Mr Saligari said.
But he warned that a bid of $6 billion from Woolworths for a combination of Coles’ general merchandise assets could make the board keen to pursue its second option of selling the company in parts.
But Wesfarmers has an insurance policy with its substantial stake in that it potentially could block a break-up option and sale to a rival.
But most analysts believed Wesfarmers would be cautious about overpaying for a rapidly deteriorating business and could offer a price below $16.47.
While Credit Suisse analyst Michael Jenneke said $16.47 was “a high-water mark” rather than a floor price, UBS analyst Michael Peet said Wesfarmers would be careful not to “low ball” its bid because it needed the support of the Coles board.
The Coles board last year rebuffed a $15.25-a-share offer from private equity groups led by Kohlberg Kravis Roberts, saying it “substantially undervalued” the company. But Coles’ performance since has deteriorated.
A decision on Coles’ future could be known as early as Monday.
