The anticipated sweetener was thrown into the Coles pot by Wesfarmers this morning.

The combination of sub prime mortgages, difficulties getting coal onto ships and some market nervousness had put pressure on the Wesfarmers acquisition of Coles. While the deal looking wobbly, everyone involved knows that Coles has no real alternative.

Wesfarmers has put to Coles a “Mix and Match“ proposal. Without lifting the overall price, WES would allow CGJ shareholders to take the original cash and scrip offer, or increase either the scrip or cash component of the price. The all scrip offer will help mums and dads allay FBT concerns, and the cash will appeal to institutions. Additionally, WES clarified their plans in relation to capital expenditure.

Wesfarmers have also taken the slightly bold step of issuing early dividend guidance.

On the assumption that the Coles deal is done, WES expects to pay fully franked $2 per share dividends for FY08 and FY09. For Coles shareholders who accept the scrip offer, this represents a 72% lift in dividend income over what they might expect under the old banner, telling them that the new regime would be a much happier place.

That Wesfarmers is eager to complete this arrangement without a higher bid is self evident. The Coles board needs to find a face-saving way to recommend the offer. The words in their statement that the dividend guidance “represents a significant uplift in prospective annual dividend income for Coles shareholders” indicates that this might be what Coles has been after.