Coles Confirms
August 23 2006 - Australasian Investment Review – (AIR)
http://www.aireview.com.au/index.php?act=view&catid=8&id=4329
We probably won’t hear any more from Coles on the ‘offer’ from the buyout group until it reports its 2006 profits next month.
While the board of Coles will now await a briefing and position papers from its advisers, the weights will be on the various buyout groups to detail their interest in the retailer.
We know Coles received an offer that required the company to virtually hand over the keys to the books and the boardroom, without any certainty of a firm, discloseable price.
That sounds absurd in Australia but appears to be commonplace in the US where shareholder rights are quite often asserted after the event through legal action, not during negotiations or a takeover.
The Coles share price will continue a slow easing it started yesterday when it eased 7c to $13.33. That will continue for the next few weeks or so with the occasional buffeting from rumours about offer prices and others being interested in a bid.
Coles is due to report its 2006 profits on September 21, so there’s every chance we won’t hear anything on this bid until then. It seems the logical time to detail further information, unless a firm offer is tabled before then, free of conditions and with a price.
It is clear the ‘offer’ from the buyout group led by KKR of the US, would have prevented the Coles board from trying to start an auction between the groups said to be interested. That would not have been in the best interests of shareholders
Here’s yesterday’s statement from the Coles board and a letter that the company’s 400,000 shareholders will be receiving later this week.
In it shareholders were warned that there might be some parties who would seek ‘to undermine’ Coles’ performance over the next few weeks.
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Coles Myer said today it had received on Friday a highly conditional proposal regarding the company’s ownership from a consortium of leveraged buyout funds.
CML Chairman Rick Allert said that the consortium stated it would only proceed with the proposal if it had the support of the Coles Myer Board.
Mr Allert said the Board had met today and appointed Carnegie Wylie & Company, Deutsche Bank and Freehills to advise it in its consideration of the proposal, to which the company would respond in due course.
"The Board will undertake proper consideration of the proposal and will not be pressured by market speculation to take actions which would not be in the best interests of shareholders," Mr Allert said.
"The Board remains confident that the company’s growth strategy will create significant value for shareholders," he said....................
Dear Shareholder
The Board received last Friday a highly conditional proposal regarding the company’s ownership from a consortium of leveraged buyout funds. The consortium stated that it would only proceed with its proposal if it had the support of the Coles Board.
The Board met today and appointed external advisers, Carnegie Wylie & Company, Deutsche Bank and Freehills, to assist us in considering this proposal. The company will respond to the proposal in due course.
The Board will undertake proper consideration of the proposal and will not be pressured by market speculation to take actions which would not be in the best interests of shareholders. It is likely that speculation will continue over the next few weeks, and it is possible that there will be some media coverage that will reflect the interests of parties who seek to undermine the company and its performance.
Against this background, I would like to outline some of the achievements of the past five years.
The facts are that between July, 2001 and 2006:
- underlying net profit after tax has more than doubled from $333 million to $785 million (subject to audit);
- return on investment has more than doubled from 11.7% to 24.1%;
- the value of your shares has risen by 90%, compared to the ASX top 200 companies at 49% and Woolworths at 71%; and
- We have returned more than $3.3 billion to shareholders through capital management initiatives and dividends.
During this period of turning around the company’s performance, we have also embarked upon a massive transformation of the way we buy and transport products from our suppliers through the distribution system and onto shelves in our stores.
This transformation will deliver a better shopping experience for our customers and is expected to realise financial benefits of $425 million a year in financial year 2008 and beyond.
As you know, the Board also took the decision recently to sell our Myer department store business, thus simplifying the Group and allowing greater financial and management focus on our less discretionary brands.
The price achieved for Myer of $1.4 billion was well beyond market expectations, and has provided significant funds for investment in the company’s future growth.
Most recently, our CEO John Fletcher has outlined our next strategic direction, centered on creating one integrated food, liquor, fuel and general merchandise business, meeting the everyday shopping needs of all Australians under the umbrella brand of Coles.
We are confident that our new vision will provide the company with market leadership, our customers with a great shopping experience and our shareholders with superior returns.
It is these opportunities for further growth that others, perhaps not surprisingly, now seek to take advantage of.
We will continue to keep shareholders informed of developments as they occur.