CGJ coles group limited

coles poised to announce sale

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    Coles poised to announce sale

    By Nabila Ahmed
    July 2, 2007

    WESFARMERS is set to be announced as the winner of the Coles auction, after the West Australian conglomerate lodged an audacious solo bid over the weekend, believed to value Coles at $20.7 billion.

    Wesfarmers boss Richard Goyder launched the bid, believed to be priced at $17.25 a share, on Saturday morning after the shock withdrawal of his private equity partners.

    Coles is expected to immediately go into a trading halt today, pending an announcement from the board, which has spent the weekend considering bids from Wesfarmers — for the whole company — and Woolworths — for parts of the business.

    Buy-out firms Permira, Pacific Equity Partners and Macquarie Bank were set to take control of half of Coles' $16 billion supermarkets and liquor business, with Wesfarmers controlling the other half. But the private equity players pulled out on Saturday morning hours before the deadline for bids.

    Wesfarmers is now expected to conduct a massive rights issue to fund the acquisition, which would double its size.

    Mr Goyder, who bought himself a 12.8 per cent stake in Coles at $16.47 a share in April, could also face pressure to sell parts of the business.

    The Coles board, which officially put the retailer up for sale in February, spent the weekend in intense discussions.

    Chairman Rick Allert and his directors last year rejected a $15.25-a-share offer from a private equity consortium led by Kohlberg Kravis Roberts.

    KKR and its consortium of five other buy-out firms, including TPG, pulled out of the Coles auction over the past month because of concerns about the deterioration in the performance of the Coles supermarket business and troubles in the US debt markets.

    Coles stock, which has fallen almost 10 per cent in the past seven weeks, last traded 35¢ below the $16.47 Wesfarmers paid to acquire its substantial stake three months ago.

    Wesfarmers had originally planned to buy Officeworks and Target outright, while sharing Coles' supermarkets operations with his private equity partners.

    A source close to PEP said the withdrawal of the buy-out firms was sparked by debt and financing issues, following the departure during the week of the Texas Pacific Group consortium due to worsened conditions in the US.

    Late on Friday night, the Wesfarmers board, anticipating the withdrawal of its partners, decided to go ahead with a bid for Coles regardless of the partners' participation.

    Early on Saturday, Wesfarmers received confirmation that the private equity groups were withdrawing from the bid. The owner of the Bunnings hardware chain then lodged a solo bid for all of Coles by the 9am deadline.

    Coles' supermarkets rival Woolworths was the only other bidder. As expected, its proposal was for parts of the company.

    Woolworths wants to buy Officeworks and either Kmart or Target and has indicated it would pay at least $1 billion more than Wesfarmers for these assets.

    The PEP source said it was continuing discussions with Wesfarmers about whether it could still play a part in the deal.

    It is believed PEP director Steven Cain, a former Coles supermarkets managing director, is a leading contender to run the chain again.
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