In the battle for Coles, Wesfarmers has arrows in its quiver that are unavailable to KKR. For mums, dads and Coles employees, it’s a far more welcome suitor than anything else being mooted.
Wesfarmers taps into the feelgood factor, as Adele Ferguson noted in Monday’s Oz. It can offer Coles shareholders scrip instead of cash, so that investors taking that option will not receive a bill for capital gains tax, particularly appealing to Coles’s huge mum and dad shareholder base.
And let’s not play down the importance of Wesfarmers being an Australian offer, and a darling of the Oz investors. The full page ad run nationwide today plays the Oz card strongly — all it’s missing is an Australian flag in the corner. Soap operas need bastards, TV wrestling needs a bad guy and a takeover needs an offshore leviathan; an evil impersonal monster to upset the natives.
If the outcome were to be decided by a vote taken among Coles staff, Wesfarmers would own Coles tomorrow.
Since last spring when Coles launched a new strategy and mounted the defence against the barbarians, morale has been in a tailspin at Battlestar Gallactica (last week re-christened Fort Fumble by Alan Jury of The AFR).
The departure of senior people, an indecisive and political culture coupled with a feeling that Fletcher’s strategy either could not achieve its goals or only do so in the short term by damaging long term prospects was bad enough. The sorry results announced two weeks ago; followed by their shaming the following day by the Myer turnaround, established a new low.
What a difference a day makes. Following the announcement of a Wesfarmers offer last week, the mood at Coles is more buoyant than anything in the last decade.
Managers at a level or two down from the top believe Coles has the strategy and plans to again be a force. However, they feel the current culture and much of the senior leadership militates against effective execution.
Too many good things at Coles are being nobbled by a risk averse culture that required everything to be run through committees, or worse, being second guessed from above.
The appointment of Peter Merritt, the former Managing Director, Supermarket Operations, to head Supermarket Merchandise (a position briefly held by Mick McMahon who has recently replaced John Fletcher in the day to day running of Coles) was applauded internally because of Merritt’s outstanding interpersonal skills and his decisive and inclusive leadership.
The prospect of a Bunnings takeover (and although it’s really Wesfarmers, Coles people are calling it Bunnings) is seen as providing the right circumstances for success. In a blink, the mood has gone from despair to excitement bordering on euphoria.
Although not fully understanding the details of the Bunnings environment, Coles people recognise that Bunnings is one of the best conceived and best executed retail offers. The prospect of some of this rubbing off on Coles is a huge sweetener. Many former Coles people have joined Bunnings in the last decade, and the stories filtering back to Coles are all positive.
While WES has not yet received the blessing of the Coles board, Wesfarmers appear to be already winning the applause of staff, suppliers and customers. Is there a better way to go in?
In fact, many internal emails at Coles last week were being tagged “Lower prices are just the beginning”.
DISCLOSURE: My company Orex has placed more than 500 managers with Bunnings, including many from Coles companies and my wife still holds her small parcel of Coles shares.