Allowing the Barbarians at the gate to pay $16 billion for Coles Myer would be a good deal for shareholders, but it might also spell the end of the relatively benign political environment enjoyed by Australia’s unprecedented grocery duopoly.
As the banking cartel has demonstrated, pro-Government and Australian-owned cartels are happily tolerated by the Howard government but the shellacking that Telstra is copping also highlights that anyone who steps out of line will cop it in the neck from politicians and their regulatory mates alike.
KKR and its fellow travellers would need to do an awful lot of screwing suppliers and cutting staff costs to generate a return on its investment, which will probably comprise about $4 billion in equity and $12 billion in debt, but a brutal break-up and restructuring would also face a lot of resistance.
Discontent with the morality and market power of Coles and Woolies has been on the rise in Australia and selling Coles to KKR would bring out all the agrarian socialist farmers and xenophobic One Nation voters like we haven’t seen since Campbell Soup moved on Arnott’s in 1992.
For instance, the Shell petrol business that Coles controls will be attacked even more over petrol prices, shafting independent and ethanol and Woolworths can forget about getting into the pharmacy business if the Barbarians would be along for the ride.
And there are many other fascinating questions – such as what happens to the sweetheart union deals with the SDA, which sustain the old DLP Grouper faction in the ALP through the factional power that comes from representing more than 300,000 retail workers.
Would Henry Kravis support the model that sees every new Coles Myer worker presented with a union membership form when the most successful retailer in the world, Wal-Mart, is also the world most virulently anti-union company?
Peter Costello was hedging his bets on ABC Melbourne with Jon Faine this morning, but there will be a lot of pressure to block this deal given that Australia has such a huge proportion of foreign ownership and so many of our icon brands have been sold off. A bitterly fought KKR bid for Coles is exactly what John Howard doesn’t need 12 months out from an election.