By Stephen Mayne, currently $79 in front on his 50 Coles Myer shares

When retailing giant Coles Myer announced the sale of its troublesome Myer department story division to Newbridge Capital for a stunning $1.4 billion in March, chairman Rick Allert told the ABC that shareholders would enjoy a profit of “more than $700 million”. The Coles Myer share price immediately jumped 52c to $10.49, partly because Allert also said there were no meaningful contingent liabilities retained by the company.

By June, when the sale of Myer was complete, the profit had dropped to an estimated $600 million, with the final result to be announced with the accounts in October. There was no explanation regarding the disappearing $100 million.

Now Crikey hears that the final Myer net profit might finish up being as little as $500 million.

We now know that Coles Myer must carry liabilities of about $170 million for the next two years, largely due to guarantees to landlords relating to Myer tenancies. These may end up being meaningless unless Newbridge defaults on leases by closing underperforming stores.

However, we always knew that property landlords, especially Frank Lowy’s Westfield, can prove hard work. As part of the argy bargy over the settlement, Westfield has forced Myer to accept the arrival of bitter enemy David Jones at a number of their centres, including our local Doncaster Westfield in Melbourne’s eastern suburbs, right in the height of Kevin Andrews’ safe seat of Menzies.

It really should be explained whether Coles Myer has effectively cut the Myer sale price because Westfield has reduced the value of the Myer business by negotiating a huge leg-up for David Jones.

Most retail analysts reckon Newbridge committed to pay too much – but now it might not be quite so much. This situation throws up some remarkable similarities with that other Melbourne icon, Foster’s, which floated its pubs and pokies business ALH in 2003-04.

Then CEO Tee Kunkel gloated to the market on October 30 2003 that the final ALH float price of $2.50 a shares would generate gross proceeds for the company of about $1.5 billion and profits of more than $700 million. When the half year result on 10 February, 2004, was announced, shareholders found out the net proceeds would only $1.29 billion, largely because Macquarie Bank helped themselves to well over $100 million. No wonder the board announced Ted’s early retirement the day before this result.

Coles Myer’s new five-year plan will be unveiled in August when analysts, journalists and shareholders will be dazzled by an all-singing, all-dancing presentation. It will be designed to excite the market, by which time they may no longer notice that Coles Myer only profited from the Myer sale to the tune of the Melbourne CBD real estate – about $500 million.

Oh dear.

Peter Fray

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