Wesfarmers’ sag puts hex on Coles buy-out
THE Coles Group takeover is coming under intense pressure as Wesfarmers’ shares closed below $40 for the first time since Australia’s biggest deal was announced early this month.
The sagging share price has wiped more than $2 billion from Wesfarmers boss Richard Goyder’s original $21 billion bid to Coles shareholders, which includes a significant share component.
After a full-day meeting yesterday, Coles chairman Rick Allert and his fellow directors will sit down for a second day of board meetings this morning to weigh their options amid rising shareholder concern about the waning value of the deal.
“There is no doubt Coles shareholders want more money,” a source close to the transaction said.
Coles shares have also fallen, closing at $14.82 yesterday, well under the $15.25-a-share offer from private equity firms led by KKR that the board rejected in October.
Wesfarmers was the only buyer left for the troubled supermarket company after private equity left the auction process, killing off prospects of a bidding war.
With only a few weeks left before the Coles board has to decide whether to ultimately back the deal, market players said the directors would be mindful of the Qantas debacle, in which shareholders scuttled the board-backed takeover, leaving the reputations of the airline’s directors in tatters and prompting chairman Margaret Jackson to resign.
Under Wesfarmers’ current proposal, Coles shareholders will get $4 in cash and 0.2843 Wesfarmers shares for every share they own, plus a 25 dividend that they will receive before voting on the deal in October. The offer was worth $17.25 when it was announced on July 2, but has since dropped to $15.58 because of the share slump.
Both companies are believed to have talked about whether to sweeten the offer with a so-called “mix and match” component that would let shareholders choose whether they wanted to receive a larger part of the payment in cash or shares, and allow them to limit their exposure to the falling share price or capital gains tax, respectively. Spokesmen for Wesfarmers and Coles declined to say whether Wesfarmers had tabled a firm proposal for such an option.
“I suspect the Coles board would like a higher cash component,” said Paul Xiradis, a fund manager who oversees more than $10 billion at Ausbil Dexia. “It’s about finetuning and trying to satisfy the smaller shareholders.”
While dealing with Wesfarmers, Coles was also hoping to revive the interest from private equity, Goldman Sachs JBWere said in a note last night. Its chances are slim after a global readjustment in credit spreads, which has stopped the worldwide surge in takeover buy-outs.
Under their agreement, both Wesfarmers and Coles can walk away from the deal if Wesfarmers shares average less than $40.18 for four weeks before the deal is finalised in October.
