Paul McIntyre: Brierley player in huge takeover

Retail giant Coles Myer is at the centre of what could emerge as the biggest takeover battle in Australian corporate history and Sir Ron Brierley might just end up as a key playmaker.

Up to $20 billion was being touted by analysts in recent days as a possible payout for the company, pushing Coles Myer stock to record highs. The market loves nothing more than a juicy takeover scenario, particularly when the original takeover barbarian, Kohlberg Kravis Roberts (KKR), is tipped as the lead carnivore.

KKR was the private equity firm which clinched the landmark US$25 billion ($39 billion) takeover of food and tobacco goliath RJR Nabisco in 1988 and crows about having since raised more than US$200 billion in acquisition financing for other deals.

There is still no confirmation about who's in play but KKR and several other private equity firms are near- certainties. The KKR consortium is being advised by UBS and is said to include Newbridge Capital, CVC Asia Pacific and others. Rival consortiums, including Pacific Equity Partners, are also being lobbied.

And hovering in the background are the British and US retail giants, Wal-Mart and Tesco. Tesco is held up as a favoured business model for the Coles Supermarket chain by Coles Myer chief executive John Fletcher although any interest from Wal-Mart for Coles would be a touch left-field given its close rapport with Woolworths (speculation is now mounting that it too could be gobbled up as growth-hungry global retailers search for expansion).

Woolworth's key management have said in the past they've pulled plenty of learning from their close rapport with Wal-Mart executives. Conversely, Woolworths management has quietly made claims of reciprocating Wal-Mart's goodwill in helping the US giant introduce cut flowers into its massive US chain although it's hardly groundbreaking.

Interestingly, it's that old warhorse Sir Ron Brierley who could either make life difficult or a breeze for any bidder for the Coles Myer business.

Brierley's Guinness Peat Group holds 15.9 per cent of Premier Investments, the company which in turn owns 5.6 per cent, or nearly A$1 billion of Coles Myer stock. Premier is Coles Myer's single biggest shareholder and in turn is controlled by former Coles Myer chairman Solomon Lew, who was forced out 10 years ago. He has since been a raging critic of the Coles board and various waves of management.

Lew is loved by the 400,000 smaller Coles Myer shareholders - they collectively own about 34 per cent of the company - and they will most likely look to Lew and Brierley for a lead. Lew made another crack for chairman in 2004 but failed and his camp was staying mum about its views on the current moves.

Premier was typically downbeat on Coles Myer's latest results, announced on Thursday before things went ballistic about a possible takeover. Sales across the group were up 7.5 per cent in the June quarter and up 5.7 per cent for the full year to A$34.4 billion ($40.9 billion). It also confirmed it was on target for a A$785 million profit. Fletcher said the figures weren't "where we want to be but each quarter the business keeps getting better and will continue to do so".

For Coles Myer shareholders, the better business scenario manifested within hours as news of the takeover interest on Thursday was confirmed by the company. Coles said "it had been approached on behalf of parties wishing to hold discussions regarding the company's ownership. The board will consider any bona fide proposals."

Coles Myer shares then jumped 12 per cent to A$13.10, valuing the company at A$15.6 billion. Yesterday it hit another record high of A$13.82 but settled to A$13.45 by the close.

A few weeks ago speculation was rife that a big offshore retailer was circling Australian retail groups rather than private equity firms. Now it seems it could well include both and a break-up of the company's numerous retail brands is very possible.

This strategy seems a touch ironic given John Fletcher's bold announcement last month that he would dump retail brands such as K mart and Bi-Lo Supermarkets and spend A$300 million consolidating them under the Coles name. The market certainly didn't like the idea, pushing shares lower. Now they're back heading for blue sky.

If any takeover does transpire, John Fletcher will bag shares and options worth up to A$27 million if he's booted out by a new owner.