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SYDNEY - Wesfarmers shook up the bidding for Coles Group by taking a stake in the underperforming retailer, positioning itself for a potential A$20 billion ($22.6 billion) takeover.
The Perth-based conglomerate joined forces with Macquarie Bank and buyout firms to emerge as a surprise contender for Coles, which
put itself up for sale in February, sources said.
Wesfarmers, which said yesterday it had voting control of 11.3 per cent of Coles and was pursuing discussions with the retailer, will compete with a rival bid consortium led by buyout giant Kohlberg Kravis Roberts.
Sources said Wesfarmers bought shares at A$16.47 and was looking to buy up to 15 per cent.
"They have got a seat on the table and no one can have 100 per cent control of Coles without Wesfarmers agreeing to it now," said Steve Robinson, a portfolio manager with Alleron Investment Management, which owns Coles shares.
"Any rival bidder would have to pay above that price. So A$16.47 becomes the benchmark price."
Premier Investments, controlled by Melbourne millionaire and former Coles chairman Solomon Lew, confirmed it had sold its entire 5.9 per cent stake for A$16.47 a share.
The price was a 2.2 per cent premium to Coles' closing price on Monday. Shares in Coles and Wesfarmers were placed on a trading halt yesterday.
Wesfarmers was part of a consortium including Macquarie and private equity firms Pacific Equity Partners (PEP) and Permira, three sources said. The consortium was expected to have up to six partners, one source said.
"It makes it incredibly competitive. All they [Wesfarmers] have done is move the floor price up to A$16.47, they have a 10 per cent stake which does not stop anyone from doing anything: game on!" one source said.
Coles last year rejected a A$15.25 a share offer from a KKR-led consortium, but put itself back up for sale in February after its planned turnaround strategy failed to improve sales at its core supermarkets division.
Coles said last week it still believed that A$15.25 a share significantly undervalued the company.
The rival KKR team includes Carlyle Group CVC, Texas Pacific, Bain Capital and the Blackstone Group.
Analysts and fund managers said it was unclear if Wesfarmers, which owns the Bunnings hardware chain, wanted Coles' speciality office products division, the A$1.1 billion Officeworks chain.
"You would not enter into such a big deal if you just wanted Officeworks. It does show there is a bit more interest out there than a lot of people thought," Tyndall Investment Management analyst Craig Young said.
"The question around this whole process is who are they going to get to run this business if it is broken up."
Wesfarmers, considered a private equity takeover target this year, had been looking at bidding for Australian energy infrastructure group Alinta, but pulled out, local media reports said.
- REUTERS