Two groups vying for control of Australia's Coles Group said on Wednesday they were still
considering their options, after one of them, Wesfarmers, failed in an attempt to raise its stake in the retailer.
Wesfarmers had approached institutional shareholders late on Tuesday but failed in a bid to buy more shares in Coles to fend off rival bids, two sources close to the situation said.
A Wesfarmers spokesman said the company has not finalized negotiations on confidentiality agreements to gain access to Coles' books. "We're still in discussions," he said, declining to comment on media reports it had offered shareholders A$17.25 a share each.
A spokesman for the rival bidder, a private equity group led by Kohlberg Kravis Roberts, said it was still assessing its options and declined to comment further.
Perth-based Wesfarmers has offered A$19.7 billion ($16.4 billion) for Coles in a consortium with private equity firms Pacific Equity Parners, Permira and Macquarie Bank. Wesfarmers has already amassed a voting stake of 12.8% in Coles as a precursor to its takeover offer. The KKR group includes Bain, CVC, Blackstone Group, Carlyle Group and TPG.
Coles, Australia's second-largest supermarket chain behind Woolworths, put itself up for sale in February after a restructuring plan aimed at reversing falling sales failed to close the gap with Woolworths.
British retailer Tesco has also been reported as a potential bidder for Coles, possibly in conjunction with Woolworths. A third source familiar with the situation did not rule out Tesco bidding. However, the retailer traditionally does not buy into mature markets.
The KKR consortium has not yet decided whether it will team up with Woolworths in a joint bid. Its other options are making a higher cash bid or setting up a listed vehicle that would give Coles shareholders a scrip option.
The consortium has not yet signed a confidentiality agreement. One of the reasons for the delay was that it has not yet finalized who its partner will be.
Both Wesfarmers and the private equity group expect to have access to Coles' books within the next two days after weeks of haggling over the rules governing the due diligence process, the two sources said.
One of them said the sticking point was that Wesfarmers wants to be able to continue to talk with shareholders once it has begun due diligence, possibly with a view to increasing its stake.
Coles, which wants a competitive auction for its assets, has been resisting that demand. "They (Wesfarmers) would move to a controlling stake very quickly and the auction would be stillborn," the source said.
Coles has said it wants to run a competitive bidding process, and ensuring a competitive auction is part of that aim.