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Two of the four senior members of the “KKR-led” consortium yesterday pulled out of the bidding for the Australian retailer, Coles. A source familiar with the situation explained that KKR and CVC have been discouraged by the performance of Coles and its management depth. He said KKR, CVC, TPG and Carlyle all had 20% in the consortium; Bain and Blackstone 10% each.
“The two senior partners will now be TPG and Carlyle with an equal share.” He added that TPG and Carlyle had decided to push forward while Bain and Blackstone are still working it out. Indications were that while TPG is not out “it is also not saying it will bid aggressively, it is still rethinking and deciding following the departure of KKR and CVC. A bid of AUD 18 per Coles share certainly looks most doubtful now.”
A source close to Coles felt this was no problem.
“We always felt you do not need six of the main global private equity firms to write a cheque for Coles. We are not at all concerned or surprised. This could all turn out to be a means of positioning and unsettling the process, a form of negotiation. KKR and CVC could still come back after the deal has been cut, we have seen such precedents.”
The source familiar with the situation noted that TPG and Carlyle are both bigger than the private equity partners in the rival Wesfarmers consortium bidding for Coles. He added that the departure of KKR and CVC would not affect Woolworths’ position. “The parties are still talking. The consortium can still bid without Woolworths. The bid still hangs without them.”
The source close to Coles suggested both consortia could prefer to bid without Woolworths as this would leave them with more to gain from any upside.
While the funding underlining the TPG/Carlyle bid is not confirmed, it has not been impacted by the departure of KKR and CVC, two funding sources to the consortium said. “Nothing has really changed. Financiers will naturally evaluate the situation following the due diligence process. The four remaining members of the consortium have the firepower without KKR and CVC.”
A second funding source expected to receive a preliminary due diligence report from the consortium in the next week or so.
“Nothing has been lined up yet but the turnaround from the banks side is a matter of days. Nobody appears to be coordinating any funding at this stage.” He said he expected Credit Suisse and UBS to be lead finance bankers. “This is a difficult question. There is plenty of jockeying.”
A source familiar with the situation said besides these two banks four other banks are involved – Citibank, Goldman Sachs, RBS and Barclays – with none in the lead yet.
A source close to Wesfarmers outlined that the Wesfarmers consortium also had six banks lined up on an exclusive basis to fund its bid. “The rules were set by Coles.” The funding in place is conditional on due diligence findings and final internal approvals from each of the banks.”
The source close to Wesfarmers felt the market had over-reacted to the departure of KKR and CVC. “Four are as strong as the six, if not stronger. It is probably more to do with positioning than any undue findings while conducting due diligence.” He ruled out the possibility of the Wesfarmers consortium changing.
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