Australia’s second-largest retailer Coles today (26 March) outlined its plans for the possible sale of the group, which is expected to be auctioned off for about A$20bn (US$16.13bn). Coles said that it is considering selling its three businesses separately in order to generate maximum interest in the sale.
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Coles chairman Rick Allert said that the company will consider bids for the entire company, the supermarket division, its discount chain Target and stationery unit Officeworks. The company is also mulling the possibility of selling a substantial stake in its supermarket operations and remaining listed, Coles said. The demerger of Target and Officeworks is also under consideration.
“In short, we intend to leave no stone unturned in looking at all options that could be in the interests of our shareholders,” Allert concluded.
Coles put itself on the block last month after slashing its profit forecast of A$1.07bn for fiscal 2008 by 10%. The decision came just five-months after the group rejected a takeover approach from a private equity consortium led by Kohlberg Kravis Roberts (KKR) offering A$15.25 per share.
The KKR-led group, which also consists of Bain Capital, the Caryle Group, CVC, Texas Pacific Group and Blackstone Group, is now among the favourites to end up with a piece of Coles. Texas Pacific Group led the syndicate that acquired the Myer department store chain from Coles for A$1.4bn last year.
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By GlobalDataIn what is widely viewed as a concession to the six-strong private equity consortium, Coles has taken a step back from rumoured plans to limit the size of syndicates bidding for the retailer to four parties. Coles will allow a maximum of six parties in a consortium and will restrict the number of banks financing a bid to three. This stipulation is designed to prevent buyout firms monopolising financing or banding together late in the sale process.
In addition to the private equity sector, interest in Coles is expected to come from a number of other quarters. Potential trade buyers include Australian retailers, such as Harvey Norman and Woolworths, along with international groups including the UK’s Tesco.
Stating that he was “very pleased” with the initial level of interest, Allert said the sale process could take up to six months.
Confirmation that the group could be broken up drove Coles’ stock up, closing at A$16.15, a rise of 0.9% that values the company at A$19.3bn.
Details of the group’s sale plans overshadowed the release of Coles’ first half results. The retailer reported a 3.5% increase in net profit for the first-half to A$501.3m from A$484.5m a year ago. Like-for-like sales at its core food and liquor division rose 2.9%, well below Woolworths’ first-half sales growth of 5.7%. Speaking at an investor briefing, chief executive John Fletcher said same-store sales had continued to decline into the third quarter.
The weak result was partly blamed on the rebranding of the group’s discount Bi-Lo chain, which is in the process of being brought under the Coles banner.
Fletcher said a number of initiatives were being implemented to boost sales in former Bi-Lo supermarkets. “We have also put in place broader strategic programmes to improve our fresh offer in supermarkets and to reinforce customers’ perception of value, including the launch of our ‘Love Fresh’ program and reinvestment in supermarkets,” he said.
Fletcher said Coles has halted plans to convert the remaining 73 Bi-Lo stores.
Coles reiterated guidance of a flat net profit for the current financial year of around A$787m, with earnings expected to rise 20% in fiscal 2008.
