Buyout interest in Coles ends as Wesfarmers continues

All eight of the large buyout firms in the race to buy Coles Group, Australia’s second largest retailer, have now dropped out of the running. Trade buyer Wesfarmers is now expected to complete the $19 billion transaction, which will be the largest in the country to date, without private equity support.

The final two of the eight buyout firms interested in bidding for Coles Group, Australia’s second largest retailer with a value of $19 billion, have now withdrawn from the process, in a development that will be seen as a blow to the industry’s prospects in the country.

Permira and Pacific Equity Partners, along with Macquarie Bank, withdrew from the Wesfarmers consortium over the weekend, leaving the Perth-based conglomerate to press on alone with the acquisition, which will be the biggest takeover to date in Australia.

Last week TPG, The Carlyle Group and The Blackstone Group all declared they were no longer participating in the bid for Coles, two days before the end of the formal auction for Coles on 30 June.

Bain Capital was understood to have pulled out prior to the formal filing with the exchange, while CVC Asia Pacific and Kohlberg Kravis Roberts withdrew their interest in May.

The Coles board has recommended that shareholders accept Wesfarmers’ offer which values the company at A$21.9 billion ($19 billion), or A$17.25 a share including a dividend of 25 Australian cents a share. Under the proposed offer, Wesfarmers will pay A$4 cash and A$0.28 cents Wesfarmers shares for each Coles share, in addition to the dividend.

A spokesman for Wesfarmers told PEO there were no plans to delist Coles and that the withdrawal of PEP and Permira resulted from a more expensive debt arrangement for the financial sponsors. While Macquarie Bank is still advising Wesfarmers on the acquisition, it will no longer be taking equity in the Coles transaction, he added.

Richard Goyder, managing director of Wesfarmers, said: “There is a lot of work to be done to restore Coles to its rightful position in Australian retail but, from the outset, our interest in this opportunity has never wavered from the view that this is a very substantial and attractive addition to the Wesfarmers business.”

The acquisition is expected to be completed in October.

The takeover of Coles was triggered by an unsolicited private equity approach last year. Coles had shunned the initial buyout approach but eventually offered itself for sale after failing to meet earnings forecasts.