Two key members of the KKR consortium bidding for Coles have walked away, and two others may be getting nervous. We can only assume that things uncovered during a fortnight of due diligence have caused second thoughts.

Does this indicate that a Wesfarmers buyout is done and dusted? Not yet.

A Wesfarmers-led group bid $16.47 for Coles on 3 April and acquired a 13% stake. A month later, Macquarie Bank was reported to have unsuccessfully tested the market with an offer of $17.25 to institutions. It was a clever move, potentially sending a shiver through other bidders without committing to anything. A new floor appeared under the CGJ share price.

Wesfarmers knows it is bidding for a troubled retailer. As WES-subsidiary Bunnings grew, the powers that be hired many managers from businesses in the Coles stable. This built a well-developed level of understanding of Coles within Wesfarmers. They are in a position to know the key issues and the challenges. This insider knowledge, coupled with their understanding of the Australian retail market, an ability to offer scrip instead of cash, their aggressive and pace-setting approach to the bid and their sheer Aussieness are key advantages that Wesfarmers has over other bidders. It might mean that a ‘barbarian’ would feel the need to offer $18.50 or more to trump a Wesfarmers bid of $17.25.

Now that it has commenced the inquisition (or should that be inquest), I suspect there will be fewer surprises for Wesfarmers than for others. The departure of bidders may indicate that the inside picture is far more ugly than they suspected.

The Wesfarmers bid was always subject to due diligence. As bidders fall away, and having closely examined the business, might Wesfarmers put in an offer lower than $17.25 or $16.47? The market is nervous. This morning, in a rising market, Coles shares fell from $17.38 overnight to a $16.69 low and $16.71 at noon.

The departure of KKR consortium members may open opportunities for others itching for a piece of Coles. Woolworths has at times resembled a kid trying to get a game of playground footy; dancing round the main players calling “kick it to me, kick it to me”. At various times they have been reported to be in bed with Tesco, Wesfarmers and the KKR group. The competition implications of their interest is being examined by the ACCC.

There is still the possibility, expressed by John Fletcher in a recent interview, that the current regime might remain in command if this bid process doesn’t produce a price they like.

I wonder how the shareholders, particularly the institutions, would feel about that.

DISCLOSURE: My company Orex has found more than 500 managers for Bunnings and my wife is hanging on to her 700+ Coles shares for the time being.

Rob Lake publishes Brandish – Retail Intelligence, a fortnightly newsletter and website.