Coles Myer has rejected a $17.3 billion takeover bid by a consortium, adding that the proposal significantly undervalues the company.
Yesterday, CML said the proposal submitted by the syndicate which comprises Bain Capital, Blackstone, Carlyle, CVC, KKR, Macquarie Bank, Merrill Lunch, Texas Pacific/Newbridge and PEP – was highly conditional.
In addition, CML’s chairman Rick Allert said the consortium’s proposal of $14.50 per share substantially undervalued the company and its prospects and was not in the best interests of shareholders.
“The proposal was also unacceptable because the extent of its conditionality meant that there was no certainty on any aspect of the proposal or indeed any obligation on the consortium to proceed.
“The indicative price proposed substantially undervalues a unique and exceptional group of business which have more than doubled profitability and earnings per share over the past five years, and which produce a return on investment of nearly 30%,” he added.
According to CML, the proposal was expressly stated to be non-binding; subject to unspecified and potentially open-ended due diligence; provided no certainty on the availability of debt finance, which was subject to satisfactory due diligence, unspecificied conditions precedent and negotiation of binding loan terms; provided no certainty on the availability of the leveraged buyout consortium’s own equity finance and provided no clarity on the terms and conditions of a proposed scheme of arrangement with the company.
Allert said with such a conditional proposal, the consortium is effectively seeking a free option over the company.
“The consortium’s timing and indicative price are highly opportunistic. Since its approach to the company, the consortium has merged with a potential rival, clearly indicating it seeks to acquire Coles Myer in an environment of the least competition and for the lowest price.
“The board has no intention of handing across billions of dollars of value that belongs to our shareholders to a third party,” he said.
CML told Australian Property Journal that it is now back to business as usual for the company.
“We will continue to pursue the strategy we outlined before the approach from the consortium,” CML said.
Allert said the company was well progressed with an extensive transformation program that would deliver higher profits and greater value to shareholders.
“The company’s new strategic direction outlined on July 31 will also drive substantial shareholder value through further initiatives to increase sales, cut costs and grow earnings,” he added.
Meanwhile, the consortium is unlikely to mount a hostile takeover bid. Allert said the consortium would only proceed with the proposal if it had the support of the Coles Myer Board.
“Such support would also be required for the consortium to effect a transaction by way of a scheme of arrangement,” he concluded.
By Adam Parsons
