As expected, Coles and Wesfarmers went into trading halt before the market opened this morning, pending an announcement.
On Friday, three partners in the Wesfarmers bid withdrew. Unlike the earlier withdrawal of members of the consortium formerly known as KKR, the exit of Macquarie Bank, PEP and Permira appears to be related more to debt and financing issues and US money markets than nervousness about Coles after examining the books.
Wesfarmers has fewer reasons to be frightened. Their experience with Bunnings gives them an understanding of what can be achieved with Coles. It appears Wesfarmers is willing to buy Coles alone. Weekend reports indicate that former MD of Coles Supermarkets Steven Cain, who has been working on the PEP element of the bid, may return to Tooronga under the Wesfarmers banner.
Coles has a bid from WES for the whole company. They have an offer from Woolworths for Target and Officeworks. There was a story yesterday of a mystery late bidder, but nothing more has surfaced.
If not received warmly, WES has the option of a hostile bid. Given their recent sliding performance, one wonders what defence Coles could conceivably mount. They might sell the cream, Target and Officeworks, to Woolworths and attempt to tough it out, perhaps bringing in some offshore expertise (Remember Eck, Zayadi and Robertson?) A break-up might be tempting as it makes future comparisons of the new and old Coles harder, avoiding a level of embarrassment for the current leaders.
Coles has few real options left. Anything other than a quick sale and the exit of the current leadership will be treated with scorn by the market and the institutions.
Most of the leadership group at Wesfarmers have not had a day off in the last forty and are unlikely to get one soon. This evolving story appears to be moving quickly, and may yet have many more elements.
Rob Lake publishes Brandish – Retail Intelligence, a fortnightly newsletter about things retail.
DISCLOSURE: Anyone who has been paying attention will know that my company Orex has recruited hundreds of managers for Bunnings and that my wife owns a few Coles shares.
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