expects its shares to climb back over a$7.00

Dow Jones Business News
Australia's Coles Myer Tips Share Price Recovery
Monday May 26, 4:59 am ET

MELBOURNE -(Dow Jones)- Australia's Coles Myer Ltd. said Monday it expects its shares to climb back over A$7.00 within the next three years, guaranteeing the value of shares issued to privately-held retail chain Theo's Liquor.

Australia's largest retailer issued 17.8 million shares to Theo Karedis, the owner of Theo's Liquor, as part of a previously announced cash and share acquisition of his beer and wine retailer.

The share deal makes Karedis the tenth largest shareholder on the Australian retailer's share registry, holding around 1.5% of the company.

Karedis becomes Coles Myer's third-largest private investor behind the Melbourne-based Myer family and businessman Solomon Lew, who was last year controversially dumped from the company's board.

To ensure an agreed equity consideration of A$125 million, Coles Myer has guaranteed each share will carry a minimum value A$7.00 for the next three years.

Shares in Coles Myer closed one cent lower at A$6.58 Monday. The last time they traded above A$7.00 was 13 months ago and the shares have since touched a low of A$5.27 in March.

Coles Myer hasn't disclosed the total value of the Theo's transaction, which was unveiled in December, although some analysts have tipped the price tag at more than A$200 million.

The retailer has claimed the acquisition of Theo's Liquor will be earnings a share positive in the first full year of its new ownership.

While Coles Myer carries any downside risk, Chief Financial Officer Fraser MacKenzie said the company may benefit by up to A$7.3 million over the next three years should the company's share price stay above A$6.59 - the price at which the shares were issued today.

"This is because the balance sheet value of the asset would remain below the agreed acquisition price," MacKenzie said.

Coles Myer currently operates 528 liquor stores under its Liquorland, Vintage Cellars and Quaffers brands. The company doesn't publish figures for its liquor business, but analysts estimate the retailer sells beer and wine worth about A$ 1.3 billion annually.

The new Theo's Liquor stores, which will continue operating under that name, will add around A$175 million in annual sales to Coles Myer's coffers.

-By Eric Johnston, Dow Jones Newswires;