http://www.smh.com.au/news/business/sharks-close-in-again-as-cole...

http://www.smh.com.au/news/business/sharks-close-in-again-as-coles-continues-to-struggle/2007/02/06/1170524094541.html

"Sharks close in again as Coles continues to struggle
Email Print Normal font Large font Elizabeth Knight
February 7, 2007


THE Kohlberg Kravis Roberts-led consortium that went for the throats of the Coles board last year was always going to renew its attack - the only question was when. The word is it will be sooner rather than later.

The conventional wisdom after the group's retreat last year was it would return in a couple of years' time if the company's management team was unable to extract the double-digit returns that they have promised when defending the hostile advances of private equity.

But over the past week rumours have persisted that the sharks have again begun to circle. There is talk that disaffected former insiders have been at the root of this new wave of speculation.

But a far more likely scenario is that the company and outsiders are understandably nervous (or excited) that a bad set of numbers from Coles in March will provide the opportunity the private equity firms need to re-enter the game.

Ask the Coles Myer camp and it remains mum on the situation. It knows all too well that if any formal approach to it or its advisers had been made than it would have to immediately inform the Australian Stock Exchange.

So the response from the company is more along the line that another higher offer from a private equity consortium would vindicate its decision last year to rebuff the barbarians. And if the suitors come back with a generous offer, then everyone is a winner - everyone is a shareholder's friend.

Now that a private equity group has moved on UK retailing icon Sainsbury's at a particularly generous multiple of earnings, it looks like any new offer for Coles would be at a price closer to $19 per share.

Of course the private equity players are the last people that would agree with this logic.

But their attempts to get this company on the cheap previously were a little hamfisted, and to get it right this time they will have to romance the board with the right offer price.

Even if John Fletcher can explain away what is expected to be a half-year result that is below expectations, the shareholders are not going to roll over and accept an offer in the same league as Kohlberg Kravis Roberts's previous attempt.

Equally a reasonably generous offer will be almost impossible for the Coles board to ignore.

The company now knows it is on borrowed time. There is only a very slim chance that it will get to demonstrate that it can meet its two-year earnings target.

Until there is any real action the management will continue to beaver away with its plan to rip costs out of the retailing conglomerate and consolidate the various stores under the Coles banner.

But it is unlikely that this plan will ever reach fruition unless it is adopted by new owners.

The Woolworths sales result last week made it clear enough that its number one supermarket brand was increasing its lead at the expense of Coles and that it was capitalising on the rebranding of Coles's Bi-Lo stores.

The market concluded from this that the upcoming Coles result would be below its expectations.

And this is the point at which investors began to factor in a "third time lucky" and more generous response from private equity.

It's probably also about the time that the Coles Myer board recognised that its defences against takeover were useless if the price was right.

The only thing that could muddy the waters is if the suitors decided to pitch a lowball price again. But no one is expecting this to happen.

The Coles board cannot ignore any price over, say, $17.50 - and if they want a bargaining tool they can use the multiple being offered for Sainsbury's to argue that $19 is a good starting point.

Of course nothing is certain in the world of finance but a betting person would probably put money on Coles not being held in public hands at the end of this calendar year.

The share price is already suggesting a whiff of corporate activity rather than recognition that its supermarkets are losing market share.

But it is unlikely that this plan will ever reach fruition unless it is adopted by new owners.

The Woolworths sales result last week made it clear enough that its number one supermarket brand was increasing its lead at the expense of Coles and that it was capitalising on the rebranding of Coles's Bi-Lo stores.

The market concluded from this that the upcoming Coles result would be below its expectations.

And this is the point at which investors began to factor in a "third time lucky" and more generous response from private equity.

It's probably also about the time that the Coles Myer board recognised that its defences against takeover were useless if the price was right.

The only thing that could muddy the waters is if the suitors decided to pitch a lowball price again. But no one is expecting this to happen.

The Coles board cannot ignore any price over, say, $17.50 - and if they want a bargaining tool they can use the multiple being offered for Sainsbury's to argue that $19 is a good starting point.

Of course nothing is certain in the world of finance but a betting person would probably put money on Coles not being held in public hands at the end of this calendar year.

The share price is already suggesting a whiff of corporate activity rather than recognition that its supermarkets are losing market share."

Also

http://www.theage.com.au/news/business/barclays-snaps-up-836m-of-coles-shares/2007/02/05/1170524026190.html

I've held since last September at $14.10 average buy price (have received a 22.5c dividend with another dividend to be declared in mid March)

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