Coles takes a stand against club deals(2)

Australian retailer Coles Group has again shunned its private equity suitors, reportedly insisting that it cut its bidding consortium from five firms to four. The move will fuel the ongoing debate about club deals.

Coles Group, the Australian retail chain currently being targeted by private equity, has reportedly insisted that any bidding consortium must consist of no more than four firms.
Coles is insisting on the limits to the size of bidding groups as it looks to increase price competition in the sale process, according to Reuters. A spokesman said the company would use “strict protocols” to ensure a “rigorously competitive process”.

The move will come as a blow to buyout firm Kohlberg Kravis Roberts, which is currently leading a five-strong consortium trying to buy Coles. Once again, KKR has teamed up with rivals The Carlyle Group, CVC Capital Partners, Texas Pacific Group and The Blackstone Group to bid for Coles – the same group that saw an A$18.2 billion ($13.8 billion) bid rejected last year. However, if Coles enforces these bidding rules, at least one of the five firms would have to miss out.

The increasing frequency of club deals has already attracted the attention of the US Department of Justice, which is currently investigating “potential collusion by large buyout firms” on the grounds that it represents anti-competitive behaviour. Most buyout firms publicly claim to avoid club deals where possible, but they have become more prevalent as deals have increased in size.

KKR director Justin Reizes defended the practice at a conference in Sydney this week, suggesting it was the only way to raise the necessary capital. “What is warranting consortia in this market is when there are extremely large transactions and we do have limited funds available to us, even the large funds globally,” Reuters quoted him as saying. “Every time we have teamed up this has been to get the debt capital to do the transaction.”

KKR may yet face competition from Bain Capital and Pacific Equity Partners, who have reportedly joined forces to consider a bid for Coles.