U.S. News

Australia's Coles Expects Rival Bid, Shares Jump


A bidding war is looming for Australia's Coles Group after the company said a Kohlberg Kravis Roberts-led consortium was confident of topping a A$19.7 billion (US$16.1 billion) bid for the
retailer, hoisting its shares to a record.

Coles, Australia's No. 2 retailer, has already attracted Australia's biggest ever takeover offer from conglomerate Wesfarmers at A$16.47 a share, after last year rejecting a KKR-led offer at A$15.25 a share.

"The Board welcomes the participation of another major consortium interested in a whole-of-company bid, Coles Chairman Rick Allert said in a statement on Tuesday.

He said KKR was confident it could equal or beat the Wesfarmers bid price for Coles, which put itself up for sale in February.

Coles shares rose 2.7% to A$17.42, well above the Wesfarmers' offer price, in an overall market up 0.9%. Potential bidders will get a look at Coles' books this week, in a process that has been speeded up by Wesfarmers' surprise offer last week.

KKR, with other private-equity firms Bain, CVC, the Blackstone Group, the Carlyle Group and TPG, will be looking for more detail on what the company is worth.

Coles did not engage in detailed discussions last year with KKR, which made two failed bids.

Coles urged shareholders on Monday not to sell until the board had considered all alternative proposals, and said it had not indicated it would recommend Wesfarmers' offer.

Argo Investments managing director Rob Patterson, holder of 2.6 million Coles shares, said he would wait for the board's recommendation, but noted the Wesfarmers bid would allow shareholders to take part in the company's improved performance. "The other bids would be hard pressed to deliver that," he said.

Perth-based conglomerate Wesfarmers has won the backing of privately owned Hedley Group, taking its voting control in Coles to 12.8%.

The Myer department store chain, which was sold by Coles last year, turned in an 80% profit increase last month under its new private equity owners, raising hopes for a turnaround at Coles, which has been losing market share to larger rival Woolworths.

A spokesman for Wesfarmers said on Tuesday the company, which owns the Bunnings home-improvement chain, would take out advertisements in Australian newspapers this week to reach Coles' 350,000 shareholders, most of whom own less than 10,000 shares.

The company's "strong Australian focus" would be mentioned, he said. Foreign ownership has been a political issue in the proposed takeover of Qantas Airways.

A spokeswoman for Woolworths declined to comment on a report in the Wall Street Journal on Tuesday that the retailer was considering joining with private equity in a bid for Coles.

While Woolworths has expressed interest in the past in Coles units Officeworks and Target, it would face an insurmountable obstacle with competition regulators in a bid for all of Coles, including the core supermarkets and liquor business. 

Woolworths holds about 40% of the food and liquor market in Australia, compared with about 35% for Coles.