Shares in Coles and its groom, Wesfarmers, fell as expected yesterday in the wake of their $22 billion, mostly scrip wedding.
Wesfarmers shares suffered the biggest drop, down 6.8 per cent, or $3.13, to close on the downside of sentiment at $42.60.
Coles though fell to a low of $15.39, before bouncing gently to close at $15.62, off 50c on the day.
Both company's shares opened lower than the close before the trading halt in the lead up to the bid. WES ended at $45.73, CGJ at $16.12.
Coles' close is well under the imputed $17.25 value of its offer, but that will rise and fall with the value of WES shares.
Yesterday's selling would have been punters and big investors taking profits and going elsewhere because they consider the bid a done deal and don't want to stay in a Wesfarmers that owns Coles. WES was a straight trading opportunity.
Under the deal, to be carried out by scheme of arrangement, Wesfarmers is offering $4 cash and 0.2843 Wesfarmers shares for each Coles share.
Under this ratio, the value of the Coles offer at the close yesterday was $16.11 without the final dividend, or $16.37, just 10c under the price indicated by WES in its April offer.
Shareholders will also be entitled to a final dividend of 25 cents a share, which is included in the final price of $17.25 per share.
The Coles board wrote to its 350,000 shareholders yesterday.
Here's what it said.
As a result of the ownership review process, the Board has received a proposal from Wesfarmers Limited to acquire Coles at an enterprise value of $21.9 billion or $17.25 per share (including a 25 cent dividend) through a scheme of arrangement to be put to shareholders at the earliest opportunity.
The proposal will deliver to you:
– $4 cash per Coles share;
– Wesfarmers scrip equivalent to $13 (0.2843 per Coles share), based on the closing price of Wesfarmers shares of $45.73 on 29 June 2007;
– $0.25 per share dividend;
– The benefit of roll-over relief on script consideration;
– The opportunity to continue to share in the future growth potential of the Coles businesses
The price of $17.25 per Coles share (including the 25 cent dividend) represents a premium of 50% to the Coles closing share price on 14 August 2006, the day before speculation of the first private equity approach to Coles, and a 19% premium to the share price on February 22 2007, the day before the Board announced the review of ownership options.
I am conscious that as I write, Wesfarmers' shares are now trading at less than their level of last Friday and Coles' own share price is less than $17.25 per share. It is common in large transactions of this nature for short-term share prices to fluctuate considerably. However, we are confident that in the long term the combination of Wesfarmers and Coles will create an outstanding organisation that will produce excellent returns for shareholders.
When the transaction is completed, the expanded Wesfarmers business will be in the top 10 companies by market capitalisation listed on the ASX, approximately 44% of which will be owned by Coles' shareholders who will benefit from a significant prospective uplift in annual income from their investment.
Based on current market forecasts for Wesfarmers' dividends per share, Coles' shareholders stand to receive an increase in dividend income of nearly 50% compared with their current Coles dividends, as well as the additional income on the $4.25 total cash under the offer.
Your Board has determined unanimously that the Wesfarmers proposal is in the best interests of shareholders and should be recommended for approval in the absence of a superior offer and subject to an independent expert determining that it is fair and reasonable.
You will be asked to approve the transaction, to be implemented through a scheme of arrangement, at a special shareholders' meeting expected to be held in October 2007.You do not need to take any action at this time in relation to your Coles shares.
Further details of the proposal and what actions you need to take will be sent to you as soon as possible.