What’s the smartest thing John Fletcher at Coles Myer can do at the moment? Easy, do nothing about Australian Leisure and Hospitality and let Woolworths take it and all the pain of integration and the distraction that will bring to Woolworths management, led by CEO Roger Corbett.

There’s suggestions that Bruandwo, the joint venture company of retailer Woolworths and hotelier Bruce Mathieson, might be poised to sweeten their offer of $2.75 a share for ALH, once they have dealt with the Takeovers Panel request for more information. But that’s probably as much market hope and faith to get a contested bid going and comes from those short term investors and others long ALH shares since the bid was announced last month.

The Takeovers Panel request for more information, on the face of it, isn’t a significant point. ALH didn’t get the unacceptable conduct ruling that it wanted to stop the bid in its tracks, but it did get a sort of reasonable second prize. But for Coles Myer and John Fletcher and his team, the information sought of Bruandwo could be gold for its reaction to a successful bid.

In brief the panel wants Bruandwo to provide more information about the integration of ALH and its businesses into the businesses of Bruandwo. What is being sought is a “substantial explanation of the direction” that already disclosed integration plans would take and the impact on ALH shareholders.

It also asked Bruandwo to provide further information about the nature and objectives of the proposed integration. Other information was also sought, as you can see from the Panel’s announcement here.

Seeing that Bruandwo is a shell company jointly owned by Woolies and the Bruce Mathieson Group, what the panel is saying is reveal more detail about the proposed integration and its direction into the businesses of the two owners. Bruandwo doesn’t have any businesses of its own or a track record to boast of.

So Coles Myer will get a glimpse of what the two partners will do to ALH and how it will be carved up and managed. That will come before it has to make its mind up if it wants to pay and play in a full bid. Buying Foster’s out of its 10% shareholding above the $2.75 rice would be a big gamble, but much cheaper than making a full bid that would cost more than a $1 billion.

ALH has already told shareholders to reject the Bruandwo offer as you can see here. But Fletcher should really be asking, is it important to be playing? Especially with momentum in the marketplace and in investors minds clearly running with Coles and its management.
A counter-offer would risk damaging that momentum and remove the expectation that many shareholders have that Coles will reward them when the results are revealed in a month or so with a fatter dividend and maybe some capital management proposals. They have surely waited long enough through the Solomon Lew wars and a depressed price to be entitled so some rewards, especially with Coles Myer’s balance sheet in the best shape since the merger in 1985.

But with sales growing at double digit rates because of the Coles Express petrol offer, but expected to slow this year, and Woolies looking to rekindle its petrol deal to re-ignite its sales momentum, the smarter thing would be for Coles to sit back and watch Roger Corbett win and struggle with the integration.

Separating poker machines and liquor sales will be the first and making sure that the successes of the Queensland joint venture of Woolies and Mathieson, are replicated across all of ALH will be the on going strategy. That will take time, effort and managerial and board attention at Woolies, and perhaps give Fletcher and Coles more time to exploit their current advantage over their bitter rival.
Woolies has difficulties right now trying to rebuild momentum in its core supermarkets business. Winning ALH might look good to the market, but there are large inherent dangers for Corbett and the Woolies board.

And finally, check out this story in the Saturday SMH. It’s an amazing story of a payroll clerk with an addiction to poker machines machines that saw her steal more than $2 million from the company and it really should worry Roger, the Woolies board and investors. It all happened by simply from the company’s cash suppliers. Amazing! This is what Roger and Bruce are heading deeper into.
A tragic story, but one the company obviously had no controls in place to stop or find. It continued for more than three years. That is the real problem for Roger and his board. Incredible!

Peter Fray

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