The end game is approaching for ALH and this is what Peta Luma has told Crikey subscribers over the past week.


Duopolists playing ALH hard-ball

From the first October 18 edition

By Crikey’s grog guru, Peta Luma

What do you reckon are the chances of Woolworths, Coles, Macquarie Bank and Bruce Mathieson all coming together and carving up Australian Leisure and Hospitality?

Have a look at this statement released on Friday afternoon by Brunandwo, the bidding vehicle for Wopolies and Mathieson, and just have a quiet wonder about how Coles John Fletcher and all those smart chaps at Macquarie now feel.

No higher bid (so Goldman Sachs-JB Were now know where the size of their fee for the defence by auction route for ALH), Bruandwo will vote its shares against the Coles-Macquarie proposal and Woolies and its partner holds out the prospects of a market-based bidding war to further frustrate the Coles deal.

The weak point is the unconditional scheme of arrangement proposed by Coles and Macquarie to carry the $3.35 bid for ALH, the one that’s topped the $3.15 from a suddenly generous and fulsome Roger Corbett and Brucie Mathieson.

That was produced days earlier and up ran the ALH share price in expectation of a higher and madder offer from Roger. None came, except that statement, hinting strongly that Bruandwo will wade into the market to buy enough shares in ALH, that, when added to the existing holding, can sink the scheme of arrangement.

Wouldn’t be too hard. Just go and make Foster’s and offer they can’t refuse, or do some clever options deal to secure the voting rights, like Solly Lew did for his now infamous tilt at the Coles Myer board a couple of years ago.

Foster’s 10% and Bruandwo’s 16% or thereabouts. A cinch. That’s enough to knock over the scheme of arrangement. And if a slab of shareholders don’t vote, then Bruandwo’s stake could do it on its own.

ALH fell 7c on Friday afternoon as the market digested the lack of a higher price.

Coles replied to the Woolies statement with a snipe or two of its own. They and their advisers, Goldman Sachs JB Were, had fun pointing out the hardline attitude and ham-fisted actions of ‘hardball’ Roger and Big Brucie. Such as the original offer of $2.75 a share was cut to $2.685 when the 6.5c a share final dividend was paid to ALH shareholders. Woolies said the original price was a “very full offer”, they questioned the valuation range by KPMG that started at $3.19 per ALH share and various other comments.

All of which were undermined or made redundant by the higher offer of $3.15 a share and allowing ALH shareholders to keep the final dividend.

Of course Coles engaged in a bit of hyperbole of its own, accusing the Bruandwo statement as “Simply an attempt to intimidate ALH shareholders into accepting Bruandwo’s $3.15 per share proposal”.

Well, I don’t know about intimidate, but the ALH shareholders have shown themselves pretty tough-minded in refusing to be stampeded by ‘Hardball’ Roger and his mate. But with the Woolies offer due to close next Monday afternoon, you can bet there were some fevered discussions over the weekend, not to mention furrowed brows at Coles HQ in Melbourne and among the Macquarie bankers.

But remember from the Bruandwo statement this phrase, “Bruandwo and its associates currently intend to vote against the proposal with the shares they currently hold and any that may subsequently be acquired after the Bruandwo offer closes”.

That word ‘currently’ used twice holds out the suggestion of opposition, but of a change of heart if something else, not specified, happens. Such as the promise of a surprise shower of prime assets from ALH. A sort of early Christmas pressie for ‘Hardball’ and his grog ambitions.

All very murky and adding to the whole increasingly grubby overtones for this mad takeover battle.

So who has got the greater incentive to settle down and negotiate a commercial settlement, Woolies-Mathieson or Coles Macquarie? And if there is any deal, will Macquarie find a way to make more money out of ALH than the $120 million plus they’ve already wrung from this company since Foster’s decided to sell last year?

Michael Pascoe’s commentary on Seven Network’s Sunday Sunrise is worth reading for John Fletcher’s big change of heart. It’s not so much a case as “what I say as what I do” with the Coles chief, especially after a visit by the Macquarie mob.

What has possessed Coles Myer?

From the October 14 sealed section

Is it permissible to ask whether a company CEO is sort of under the influence of some strange power? Are there witches or some other strange beings at Macquarie Bank that can persuade the dumbos at Fosters to part with $100 million on the float of Australian Leisure and Hospitality a year or so ago, and then return and weave their web around Coles Myer’s John Fletcher and seduce him into a deal to try and snaffle ALH from Woolworths and Bruce Mathieson?

And remember Macquarie and a group of its institutional mates did also get a swag of ALH shares at $2 a share when the punters paid $2.40 and the non insider institutions copped $2.50.

Fosters and its board, including CEO Trevor O ‘Hoy are looking complete idiots. Something they sold for less than $900 million is now worth $1.2 billion. And Macquarie was on both ends of the transactions. Amazing.

And what about Fosters’ shareholders? They are really stuffed by their board’s cupidity. A board that included that alleged numbers man, David Crawford. Heaven help us if David Crawford ever got close to running a company!.

And what about Coles Myer shareholders? A higher dividend after a very good profits, but no capital return. However there were hints that this would be looked at 2005. Certainly will, and in 2006. Fletcher has gone and spent the money that rightfully was due to the tens of thousands of Coles Myer shareholders.

The new company will be run as a stand alone business by Coles Myer and Macquarie. Macquarie is putting up 60% of the money, Coles Myer, 40%.

>It’s 4% of Australian retail liquor sales. That values the entire retail liquor market at between $25 and $30 million, which the present value of all sales through Woolies supermarkets. A silly, silly price.

All those other independent liquor owners will be either rubbing their hands with glee at the prospect of higher asset values, or sighing with the knowledge that after this deal there won’t be too many more buys by Coles, or Woolies.

There will have to be ACCC approval of this deal.

Fletcher says the contribution to this deal from Coles Myer will “be in the order of $450 million”.

That’s about three quarters of this year’s net profit, at a time when retail sales show signs of easing, putting more pressure on the Coles turnaround story.

So why has Coles Myer’s John Fletcher gone and bid with Macquarie Bank for ALH at $3.35, 20c a share above the revised offer from Bruandwo, the bidding vehicle for Woolies and Bruce Mathieson? Check out the ASX announcement here.

Who knows, a rush of blood, the seductive whisperings from the Macca millionaires?

>And here’s the Sydney Morning Herald report of the bid – Coles Myer trump Woolworths for pub chain – after it was finally revealed to the market this morning after being comprehensively leaked all over town by the various advisers. When Macquarie is in a deal (like UBS) and not to mention a couple of other advisers (Goldman Sachs JB Were) the briefings flow like honey to the Chanticleers and “Gladys” Knights of the finance reporting world.

So will Roger Corbett top the price in another ‘non-negotiable ‘ offer like that at $2.75 back in July that kicked off this whole sorry saga of greed and cupidity?

If he’s sensible he will stand back and start a liquor discounting war to pressure Coles even further in the market place.

Roger and Bruce thought they were playing hardball when the trimmed the $2.75 a share offer back to an effective $2.685 per share by discounting the final 6.5c a share dividend from ALH. That got ALH shareholders and some advisers were pi–ed off. No wonder.

When the opportunistic private equity group, Newbridge was rustled up for a quick counter offer of $3.05 a share, Bruce and Roger quickly added another 10c a share to that and generously offered ALH shareholders the right to keep their final dividend. How noble!

And equally it was unsurprising when ALH popped off an $11 million cheque to Newbridge earlier this week for the break fee that came with the recommendation of the higher offer from Bruandwo.

ALH obviously didn’t want the risk of paying any more money to Newbridge, or even THE likelihood that someone clever at Newbridge could have asked for another $11 million from the Coles-Macquarie bid.

That break-fee was so obviously not needed, that ALH directors should hang their heads in shame.

Coles would have appeared, or did someone think it was worth getting the bunnies at Coles Myer all panicked by introducing Newbridge into the equation? That got Woolies really interested, very quickly, and that in turn concentrated the minds at Coles.

All the advisers benefit from the action in the auction. They are not called fee merchants for nothing, including Newbridge

But having extracted higher offers from Bruandwo and got Coles and Macquarie to the starting line, the ALH mob will just shrug off criticism of how easy Newbridge made $11 million.

It’s all a bit obscene!

And John Fletcher is okay, a big fat salary and three million dollars from the exercise of a million options late last month. Not much downside for him if this deal underperforms or stops the Coles comeback from happening like it should.