Less than a day after it rejected Wesfarmers’ $19.7 billion offer and warned shareholders not to sell their shares, the board of retail takeover target, Coles Group, says the consortium led by private equity firm, Kohlberg Kravis Roberts (KKR), may come again with a third bid.
Australia’s number two retailer also again insisted that the indicative offer from Wesfarmers of $16.47 a share was not high enough to be recommended to investors.
Some media reports and brokers say the WES offer is $16.47 cash. That’s wrong: it is a cash and Wesfarmers share offer.
News of the new confirmed approach from KKR for Coles sent the retailer’s shares up to a high of $17.42 before they settled back to close 36c higher at $17.33.
“Until such time as Coles’ ownership review has been completed and the Coles board has made a recommendation to shareholders, Coles shareholders are advised not to sell, or grant economic or voting interests over their shares,” the company said in a on Sunday and repeated again yesterday morning to the ASX.
The KKR consortium says it’s still interested in acquiring 100 per cent of Coles. The consortium includes Bain, CVC, KKR, the Blackstone Group, the Carlyle Group and Texas Pacific Group.
Coles chairman Rick Allert said the KKR-led consortium had indicated its confidence in getting to a price equal to or above $16.47 per share indicative value from WES, subject to due diligence.
(That’s not very confident of KKR and Coles. You would have thought KKR would have been ‘confident’ of beating the WES offer, not also “getting a price equal to or above”.)
Mr Allert said that the KKR-led consortium was ready to begin due diligence as soon as agreement relating to process protocols and confidentiality had been reached.
“The board welcomes the participation of another major consortium interested in a whole-of-company bid as contributing to a competitive ownership review process and therefore being in the best interests of shareholders,” he said in a statement to the ASX yesterday afternoon.
Wesfarmers lifted its stake in Coles a further 1.5 per cent at the weekend to 12.8 per cent after the Hedley Group pledged its shares to the bid and put in a shareholding notice confirming that interest yesterday.
Coles said the Wesfarmers-led group’s current interest in voting power was not enough to prevent or deter the emergence of an alternative takeover proposal.
But it is enough to stop a 100 per cent straight bid and WES has enough to make life very difficult in a scheme of arrangement on which, if proposed by someone else, it can vote its shares.
Wesfarmers shares again finished up yesterday after being weak for most of the day, especially after the Coles letter on the possible new interest from KKR.
WES shares finished 2c up at $39.14 and the shares remain around $2 or so above the level they were at before it revealed its interest in Coles 10 days ago.
That is not how a bidder’s shares usually perform in the immediate aftermath of announcing a takeover, especially one as large and as difficult as this grab for Coles.
It is a vote by shareholders and punters (and no doubt some forward thinking hedge funds) that WES can afford to lift its offer and not destroy value.
An extra $1 a share (to $17.47) adds almost $1.2 billion to the cost, but with its partners, Macquarie Bank, Permira and Pacific Equity, that is easily done, especially with WES offering its shares.
What the rise in the value of the WES shares also says is that investors still see more value in the cash and shares offer proposed, rather than a straight cash bid, which KKR bid would have to be unless it found a local company to partner with (Harvey Norman?).
That positive move in WES shares since last week is the best indication yet of a decision by investors where the best Coles offer lies.
Certainly Woolworths would not get within cooee of the bid, even though it’s claimed to have signed up for the confidential briefing.
If the ACCC and Graeme Samuel allowed that we may as well all throw away our shares and emigrate: there would be no competition policy at all in this country (and isn’t it odd how some brokers and media can’t see that?).
All bidders who have signed confidentiality agreements will be able to gain access to Coles’s books as soon as possible.
Mr Allert said that both the Wesfarmers-led consortium and the KKR-led consortium would be given access to the due diligence data room when confidentiality agreements were finalised, which he expected to occur shortly.
