KEY POINTS:
If it wasn't bad enough for Coles Group last Friday having to make a A$106 million ($120 million) profit downgrade and bow to the private equity vultures with a A$20 billion sale process, Woolworths' new boss Michael Luscombe made sure this week that his archrivals were squeamish.
Just four months after he took over from Roger Corbett as Woolies chief executive, Luscombe came out on Tuesday with a blistering half-year result which puts an ocean between Australia's two retailing super groups.
Moreover, Luscombe made a few comments on Tuesday which ever so delicately put the boot right into his archrival.
Woolworth's this week announced a 28 per cent rise in first-half profits to A$695.6 million and even upgraded its outlook for the full year which means the final figure could top A$1.2 billion. The retailer's shares rocketed A54c on the back of that guidance to a record close of A$26.74.
But just to twist the knife a little further into the Coles carcass, Luscombe dismissed the probability of a private equity-backed takeover of his company on the basis that such deals were usually reserved for underperformers.
"If you look at the targets that private equity are going for, they're obviously ones where they see some laziness in the balance sheet, where they see upside in the operations of the business, where assets can be liquidated and the initial debt sold down," he said. "If you look at Woolworths, even on a world scale, we're a very efficient business. There will be plenty of other businesses that will be attractive to private equity before Woolworths."
There's not much Coles Group can say to that other than what its chairman Rick Allert proclaimed the same day in Perth at a business lunch. Unlike the head of the Commonwealth Bank, Ralph Norris, who was warning of the dangers of the private equity free-for-all a few weeks aback, Allert was talking the whole trend up and no surprise as to why, of course. But he did make some good points about the shortsightedness of fund managers when valuing companies - a lament being increasingly made by the bosses of public companies.
The upside for private equity owners of a business, Allert told his lunch audience, was that they did not have to face the relentless probing of fund managers, making it easier to take longer-term decisions without copping punishment in the short-term on their stock price.
"I think private equity obviously has some advantages that public companies don't, in not having to report so regularly - for example, if private equity wants to take over a company it can wear losses for some time. Fund managers don't like to see a decline in earnings for public companies, even if there is a good reason for it, and the reality is the share price will suffer.
"Some [private equity-backed] acquisitions will end in tears, true, but private equity is more likely to keep everyone on their toes and result in better returns for shareholders."
Allert's words were very similar to what the executive chairman of STW, Russell Tate, said a week earlier. STW is the A$650 million transtasman marketing communications group of larrikin adman John Singleton, and it too is getting cranky with fund managers for the way in which they are valuing the company.
Tate said two weeks ago STW's board would also be considering a leveraged buyout this year.
"It's not a problem unique to us but to deliver on short-term investor expectations you have to take decisions that are not in the best long-term interests of the company in order to meet short-term expectations," he said.
"So if you're a bit behind the eight ball halfway through the year, you tend to cut and cut early.
"You cut training, travel, you defer recruitment.
"You defer, ridiculously, to the following year because guess what, you've got a whole year. If you weren't working to that crazy deadline but over a three to five-year horizon, we'd be better off doing all those things straight away because it's the right thing to do."
The criticism of the markets is all too true but a better way is contingent on having a private equity consortium which wants to hang around for at least five years.
You can bank on a few looking for fast bucks, which demands an investment strategy with blinkers.
Just a few of those frustrated public company bosses could find themselves in more of a straitjacket under private equity owners than they are now.
