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SYDNEY - Private equity group CVC pulled out of a consortium eyeing Australia's Coles Group, but analysts said the group still had plenty of financial firepower to pursue its bid.
The consortium, which includes Kohlberg Kravis Roberts, said it could not rule out further changes to the group interested in buying all or parts of the retailer, which put itself up for sale in February. It is competing with an existing bid by Australian conglomerate Wesfarmers.
"They are still in the game. Maybe CVC pulled out because they saw the price towards the upper limit of what they were prepared to accept, given the aggressive stance that Wesfarmers has taken," said Holst & Co analyst David Spry.
"They do have a pretty formidable competitor and maybe they see it being a bit risky at this price level," he said.
Coles shares were down 0.5 per cent at $A17.37, with Wesfarmers off 0.6 per cent at A$37.69 in a slightly firmer broader market.
The bid group had finished an exclusive two-week stint examining Coles' books on Friday, but they are continuing due diligence. This included access to detailed financials, lease arrangements and supply contracts.
The KKR group also includes Bain, Blackstone Group, Carlyle Group and TPG. Rival retailer Woolworths is also eyeing some Coles assets but has not yet decided whether to team up with the KKR group, sources have said.
"I can confirm that CVC is no longer part of the consortium," a spokesman for the buyout group said, confirming a report in The Australian newspaper.
"One can presume they have some concerns about the state of the business."
Wesfarmers has already offered AS$19.7 billion for Coles, or A$16.47 per share, and amassed a 12.8 per cent voting stake.
Wesfarmers started due diligence on May 25 and is attending management presentations starting yesterday on the Officeworks business supplies chain and discount retailer Target and continuing today with the core food and liquor business.
The Australian conglomerate has teamed up with Macquarie Bank and private equity groups Permira and Pacific Equity Partners.
Wesfarmers tried to raise its stake in Coles with a higher A$17.25 offer price earlier in May, which would have valued the company at A$20.6 billion, but was rebuffed by institutional holders.
Because investors who accept shares can get capital gains tax relief, Wesfarmers is seen as having an advantage of more than A$1 a share over a straight cash bid by KKR.
Analysts have said the KKR group would need to offer at least A$18.50 to match a possible Wesfarmers offer of A$17.25 for retail shareholders to receive the same benefit.
British retailer Tesco also hired an investment bank to look at a possible approach but later pulled out of the race. Coles has said it will accept final bids for the company in the week beginning June 25, after reporting soft quarterly sales that failed to keep pace with inflation in its core supermarkets and liquor business.
- REUTERS
