News Limited commentator Terry McCrann continues to demonstrate his lack of understanding of retailing in his recent attacks on the betrothal of Coles and Wesfarmers.
For three days last week I chaired the National Retail Forum, mixing with industry leaders from Coles, Wesfarmers, Myer and other majors. Several senior Coles people, including one who had worked for Bunnings in a previous life, speak enthusiastically about the future under a new regime.
But McCrann ascribes the success of Bunnings to low-cost Chinese imports, and says that WES chief Richard Goyder is punting on dramatically improving Coles by continuing to surf the China wave. McCrann is ignoring a well-devised and well-executed strategy built on one of the best corporate cultures in the world. Last week, McCrann called WES chief Richard Goyder delusional. McCrann is on the WES case again today.
For a time around two weeks ago, I began to think the Coles Wesfarmers deal would end in tears. As sub-prime markets and coal exports combined with market nervousness about the deal to depress the WES share price – and the effective offer price for Coles, Bloomberg was insisting that WES would have to raise their bid. It was quite clear that WES did not intend to do so. We were being told that the deal was dead unless WES sweetened their offer.
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Wesfarmers delivered a sweetener, not in the form of a higher bid, but by offering options around the mix of cash and scrip available to CGJ shareholders. Wesfarmers also gave early dividend guidance and clarified their capex intentions.
Coles chair Rick Allert appeared to have won his face saver and the market reacted favourably, pushing the WES share price above a critical level. If WES had traded below $41.16 for 20 consecutive days, either party could have called the deal off. The clock was reset.
Sounding just a little like spurned suitors, Gerry Harvey and Roger Corbett appeared to be making mischief by talking down the deal. Woolworths and Harvey Norman stand to benefit if the WES deal collapses and Coles is broken up.
Retail leaders understand what has been happening at Coles and Bunnings far better than McCrann or analysts who love a headline. The overwhelming among them is that the Coles Wesfarmers deal is by far the best option, and quite possibly the only way forward for Coles.
Disclosures: My company Orex has recruited managers for Bunnings, Myer and recently for a Coles company. My wife owns Coles shares.
Rob Lake publishes Brandish – a newsletter about retail intelligence.