A Kohlberg Kravis Roberts-led consortium pursuing Australian retailer Coles Group is considering partnering with a listed company in its bid, which could make the offer more tax efficient for Coles shareholders.
KKR is facing a potential bidding war with conglomerate Wesfarmers for Australia's second-largest retailer, which has offered A$19.7 billion (US$16.4 billion) in a combination of cash and scrip.
Analysts have said Wesfarmers may have an advantage with shareholders since the scrip portion of its bid offers capital gains tax relief, which a cash-only bid cannot match. "Options are clearly being assessed," a source familiar with the situation told Reuters on Friday. "It's premature to suggest that any agreements one way or the other have been made," the source added.
Local media have said Australian supermarket retailer Woolworths is interested in finding a partner to make a possible bid for the Coles group or some of its divisions.
Woolworths has said it has sufficient funds to make a number of acquisitions, but has declined to comment on Coles.
Partnering with a listed company would provide the KKR-led consortium of six private equity firms with the option of offering shares as part of a renewed bid for Coles. It had two offers rejected last year. The consortium includes Bain, CVC, Blackstone Group, Carlyle Group and TPG.
On Tuesday, Coles management said KKR had told the company it was confident it could match or beat the Wesfarmers bid for Coles, raising the prospect of a bidding war between the two.
The Coles board, which put itself up for sale in February, has pointedly not given its backing to Wesfarmers.
Coles is unusual in having a large proportion of its shares held by small retail or "mum and dad" investors, for whom tax relief would be a consideration. Its retail shareholders own about 25% of the company.
Wesfarmers amassed a 12.8% voting stake in Coles as a precursor to its takeover offer, but will be required to stop acquiring shares on-market when the due diligence process begins.
Coles had been expected to open its books to suitors this week, but delays in negotiating confidentiality agreements makes next week look more likely.