Australia's Coles up for sale, shares surge
(Adds analyst comment, details on potential buyers)
By Victoria Thieberger and Michael Smith
MELBOURNE, Feb 23 (Reuters) - Australia's Coles Group Ltd. CGJ.AX put itself up for sale on Friday, saying it believed it was worth more than the A$18.2 billion ($14.3 billion) offer from private equity that it rejected just months ago.
Shares in Australia's No. 2 retailer surged 10 percent to a record on the news, which comes just six months into a five-year turnaround plan that was designed to fend off previous bidders.
A sale of the entire group would be the largest in Australian corporate history.
Coles said it had received a number of informal approaches in recent weeks, but declined to say whether they were from other retailers or private equity interests, and said no firm offer had been made. A source familiar with the situation told Reuters Coles had received approaches from three parties.
It said it would open its books to potential buyers and would consider a full sale or a break-up. The review would likely take three to six months, Chairman Rick Allert told a briefing. "As a buyer you could take the whole thing and split it up and get optimal returns," said Tyndall Investment Management analyst Craig Young, adding that larger rival Woolworths Ltd. (WOW.AX) would likely be interested in the valuable Officeworks or Target chains.
A break-up would be a reversal of Coles' own strategy, which was to fold the separate stores under the Coles banner.
The retailer said on Friday that sales have fallen short of expectations at its core supermarkets business, and it cut its earnings forecast for 2008 by 10 percent.
Coles rejected two offers last year from a private equity consortium led by Kohlberg Kravis Roberts [KKR.UL], the second of which was at A$15.25 per share.
The stock traded above that level for the first time on Friday, hitting an all-time high of A$15.95 before closing up 8.6 percent at A$15.75. Allert said Coles would not consider any offer unless it was substantially above the A$15.25 per share KKR offer. He said independent advice valued the company well above that figure.
A source close to KKR said on Friday it was unlikely to take a second tilt at Coles. However, another source said the three recent approaches to Coles had included KKR.
Coles' advisers also planned to limit the size of any future bidding consortia on concern that a large grouping would reduce the potential for a rival bid, citing a similar move by General Electric Co. (GE.N) in the sale of its plastics unit.
NOT ABOVE A$15.25?
Other sources familiar with the situation said all the members of the previous bidding consortia were expected to take a look but would not be keen to pay above A$15.25.
The nine-member KKR-led consortium had included Carlyle Group, CVC, Texas Pacific Group [TPG.UL] and Blackstone Group. For the first of the two bids, it had also included Bain Capital, Pacific Equity and Macquarie Bank MBL.AX.
KKR is currently considering a joint bid with CVC [CVC.UL] and Blackstone Group [BG.UL] for J. Sainsbury Plc (SBRY.L), Britain's No.3 supermarket.
Credit ratings agency Standard & Poor's said it may downgrade Coles' corporate credit ratings.
"The more likely outcome is a leveraged buyout of Coles by private-equity funds, which would likely result in a substantial deterioration in the group's credit quality," S&P said. Moody's Investors Service also said it is reviewing its ratings.
Coles last year sold off its Myer department store chain to Texas Pacific Group for A$1.4 billion. It still has 700 supermarkets, 800 liquor stores and the Target, Kmart and Officeworks retail chains.
It has been consistently losing market share in its core supermarkets business to Woolworths, which is expected to report a surge in first-half profit next week.
In response to the KKR bid last year, Coles launched a five-year overhaul to ditch the Kmart and Bi-Lo supermarket brands, create superstores under the Coles banner, cut staff and boost earnings 35 percent by 2008.
However, on Friday it cut that forecast and said growth would be slower than previously envisaged. Analysts have said the supermarkets and liquor businesses alone could be worth up to A$13 billion, based on a multiple of 15 times earnings, while a lower multiple was likely to be applied to the non-food businesses.
Coles is trading at just under 22 times forecast earnings, compared with 24 times for Woolworths and 36 for Sainsbury.
($1=A$1.27)
(Additional reporting by Alison Tudor in Tokyo)
((Editing by Kim Coghill; victoria.thieberger@reuters.com; Reuters Messaging: victoria.thieberger.reuters.com@reuters.net; +61 3 9286 1421)) Keywords: COLES OWNERSHIP/
(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nSYD185905
- Tweet this
- Link this
- Share this
- Digg this
- Reprints
Follow Reuters