KEY POINTS:
Australia's Coles Group put itself up for sale on Friday, saying it believed it was worth more than the A$18.2 billion ($20.4 billion) offer from private equity that it rejected just months ago.
Shares in Australia's No 2 retailer surged 12.5 per cent to a record on the news, which comes just six months into a five-year turnaround strategy that was designed to fend off previous bidders.
Coles said it had received a number of informal approaches in recent weeks, but declined to say whether they were from other retailers or private-equity interests and said no firm offer had been made.
A sale of the entire group would be the largest in Australian corporate history.
"It appears they've put themselves on the sale block," said Rob Patterson, managing director of Argo Investments, which owns 2.65 million Coles shares.
The retailer also cut its earnings forecast for 2008 by 10 per cent, blaming lower than expected sales at its supermarkets and discount chain Kmart.
Coles said it would open its books to potential buyers and would consider a full sale or a break-up of the company. The review would likely take three to six months, chairman Rick Allert told a briefing.
Coles rejected two offers last year from a private equity consortium led by Kohlberg Kravis Roberts, but a source close to KKR said yesterday it was not behind the recent approaches.
KKR is currently considering a joint bid with CVC and Blackstone Group for J Sainsbury, Britain's No 3 supermarket (See C27).
A source said one of the members of the previous KKR consortium was studying a possible bid. He declined to say which one.
The KKR-led consortium had also included Carlyle Group, CVC, Texas Pacific and Blackstone Group. For the first of the two bids, it had also included Bain Capital, Pacific Equity and Macquarie Bank.
Allert said Coles would not consider any offer unless it was substantially above the A$15.25 per share KKR offer. He said independent advice put the value of the company well above that figure.
Its shares traded above that level for the first time yesterday, hitting an all-time high of A$15.95 before ending A$1.25 higher at A$15.75, a jump of 12.5 per cent.
Standard & Poor's said it might downgrade Coles' corporate credit ratings.
"The more likely outcome is a leveraged buyout of Coles by private-equity funds, which would likely result in a substantial deterioration in the group's credit quality," S&P said.
Coles, which last year sold off its Myer department store chain to a private equity group for A$1.4 billion, still retains 700 supermarkets, 800 liquor stores, and the Target, Kmart and Officeworks retail chains.
It has been consistently losing market share in its core supermarkets business to rival Woolworths, which is expected to report a surge in first-half profit next week.
In response to the KKR bid last year, Coles launched a five-year overhaul to ditch the Kmart and Bi-Lo supermarket brands, create superstores under the Coles banner, cut 2500 staff, improve margins and boost earnings 35 per cent by 2008.
However, yesterday it cut its earnings forecast for 2008 and said the turnaround plan would produce slower growth in future years than previously envisaged.
- REUTERS
