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KKR Still in the Race for Australia's Coles

Reuters
Tuesday, 3 Apr 2007 | 9:13 PM ET

Private equity giant Kohlberg Kravis Roberts will still consider a bid for Australia's Coles Group, despite a A$19.7 billion (US$16 billion) offer for the retailer by conglomerate Wesfarmers, sources familiar with the situation said.

The underperforming supermarkets group is pushing ahead with plans to open its books to rival buyout groups, but analysts and fund managers were divided over whether the Wesfarmers offer -- Australia's biggest takeover bid -- would knock out rivals.

One source close to the process said a rival consortium led by KKR was unlikely to top Wesfarmers' offer of A$16.47 per share late Thursday. "There have been many discussions around value and I can't see them (KKR) coming anywhere near this price," the source told Reuters.

However, KKR still planned to take a look at Coles' books and had not ruled itself out of the bidding process, a second source said.

Perth-based Wesfarmers emerged as a surprise contender for Coles on Tuesday after it took voting control of an 11.3% stake and later announced an indicative A$16.47 cash-and-scrip offer for the retailer which put itself up for sale in February.

"There is every chance you are going to get some alternative bids from other players," Angus Gluskie, portfolio manager with White Funds Management, which oversees A$460 million, including Coles shares, said. "It is a good price, but I think there is no doubt that they could probably go a bit further on price and they may have to do it if there is another bid."

However, analysts said a higher offer was not impossible but less likely. "Wesfarmers is in a strong position to succeed given the price being offered, its voting stake and the tax attractions of its scrip offer for domestic retail shareholders," Credit Suisse analysts said in a note to clients.

One source said Coles' advisers planned to open a data room to potential bidders after Easter. Coles wants to leave the door open to rival offers for all or parts of the company.

As well as the KKR consortium, private equity firms Cerebrus Capital Management, CCMP Capital Asia and Apax Partners had also shown some interest, one source said.

Wesfarmers said it would restructure Coles if its bid was successful.

The core food, liquor and general merchandise business would be owned by Wesfarmers and consortium partners, Macquarie Bank and private equity firms Pacific Equity Partners (PEP) and Permira. Wesfarmers would own 50% of these businesses.

Coles' Officeworks and Target businesses would be fully owned by Wesfarmers, which already owns the Bunnings hardware chain. A KKR spokesman declined to comment.

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