Sponsors circle giant Australia LBO

Shares in retailer Coles Myer have soared after a $12bn approach from KKR, Carlyle, CVC Asia Pacific, TPG Newbridge and Goldman Sachs.

Private equity groups are reportedly preparing a takeover of Coles Myer, a large Australian retailer, in a transaction estimated to be worth up to A$16 billion (€9.5 billion; $12.2 billion). If successful, the deal is set to become the largest takeover in Australian history.

Kohlberg Kravis Roberts, CVC Asia Pacific and The Carlyle Group have reportedly teamed up to acquire the company. TPG-Newbridge and Goldman Sachs have also been linked to the consortium. According to the Financial Times, KKR founder George Roberts presented a buyout proposal to Coles Myer’s management earlier this week.

Bain Capital and local manager Pacific Equity Partners are “understood to be creating a second bidding consortium”, said The Australian, a local daily.

On 17 August, Coles Myer confirmed it had been “approached on behalf of parties wishing to hold discussions regarding the company’s ownership” in a filing with the exchange. In the same statement which did not identify the interested parties, Coles Myer said its board “will consider any bona fide proposals”.

The shares of Coles Myer have shot to record highs. Today the company traded at A$13.82 a share, up from A$11.70 a share at the close of 16 August.

The news has sparked a flurry of media reports citing Wal-Mart and Tesco as well as local retailer Harvey Norman Holdings as potential strategic buyers that could muscle in. Harvey Norman could partner with Ironbridge Capital, an Australian private equity firm, reports said. Harvey Norman has refuted that it is in discussions with Coles Meyer.

None of the private equity firms involved commented.

“It is too early to speculate on the syndicate makeup for the takeover. Right now, everybody is talking to everybody. Unlike the UK, where it takes up to 60 days from the time a bid is submitted to the time of a deal closing, this could take months,” said a source at one of the private equity firms involved.

The source added: “Coles Myer is a classic business model that lends itself to private equity buyouts. It is almost unleveraged. The eventual buyer will delist the company and unbundle its assets, selling the supermarket business to a trade interest like Wal-Mart for instance.”

The source also pointed to recent performance-related difficulties at Coles Myer as a critical element to why private equity groups are now keen on a deal.

In March, the company sold its Myer department store business for A$1.4 billion to a private equity consortium led by TPG-Newbridge.

On 31 July, the company announced strategic changes including a name change to Coles Group; the creation of a new business combining food, liquor, fuel and general merchandise under one umbrella; and to increase investment in a number of areas including supermarkets.

After the announcement Coles Myer’s share price slumped below A$11 when analysts cut their recommendations on the grounds that the proposed changes would not do enough to revive the company.