News Ltd’s Terry McCrann and retired Macquarie Banker turned AFR columnist John Green were poles apart on the performance of the Coles board this morning.

Whilst Green declared the board were the “real stars” of the saga, McCrann maintained his five year jihad against those Coles directors that took on and beat Solomon Lew and declared then “breathtakingly naive” for letting KKR inspect the books without committing to make a bid.

This position seems quite bizarre. The board is trying to engineer an auction. Even Wesfarmers is refusing to make a firm offer without inspecting the books.

The AMP bid for GIO and HIH’s $300 million purchase of FAI are the two best examples of the folly that is a take over bid without due diligence. What does McCrann want? A one bidder auction because KKR and its fellow travelers would obviously refuse to blindly making a bid without access to the Coles data room.

Green has something of a conflict having a forged a close relationship with Coles chairman Rick Allert when he was the adviser who wisely counseled the Axa board to reject a mop-up bid from the French parent at $4.05-a-share in 2004. Axa shares are today trading at $7.42.

His praise is a little over the top given the woeful operational performance of the Coles board. Sure, rejecting $15.25 last October might look wise in hindsight, but you have to remember that the overall market has risen 10% since then and Woolworths shares have rocketed from $20 to $28 – a rise of 40%.

If KKR’s bid had proceeded, many Coles shareholders would have profitably ploughed some of that cash back into Woolworths to retain a comparable retailing exposure.

The statement from Coles yesterday that the KKR consortium expressed “confidence in getting to a price equal to or above per share” suggests the contest remains strongly in favour of Wesfarmers.

For starters, they’re sitting on 13% which would probably be enough to vote down a KKR scheme.

However, the more important factor is the $2 rise in the Wesfarmers share price since its $2 billion raid last week. Given that Wesfarmers scrip is part of the currency, something Coles shareholders want for capital gains tax rollover relief, they actually have an increased capacity to lift their bid.

If KKR lobbed $17 on the table, it would be almost certain that Wesfarmers would return with more until victory was secured. If KKR really wants Coles the smart tactic would be to launch a bid for Wesfarmers.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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