Ex-Woolworths boss Roger Corbett says the buyer of Coles Group could pay too much for the retailer in the current bidding war and it is clear some of its assets are in great distress.
Wesfarmers, which is battling for control of Coles Group, yesterday stood by its A$19.7 billion ($22.17 billion) offer, and its rival bidder, led by the private equity group Kohlberg Kravis Roberts (KKR), remains in the picture after signalling last week that it could trump the Wesfarmers bid.
Corbett, who works as a consultant for Woolworths, said it was early days but the current bidding climate had created a scenario where rational thought was tossed aside.
"Some of the assets in Coles Myer are clearly distressed and you get a competitive type of bidding process and that gets overrated and the due diligence process and careful rational thought get underrated.
"It is a great danger in a process like this," he said, "so very clearly there is a danger - a big danger - that people are overpaid for some of these assets."
Corbett said the buyer should weigh things up carefully as there would be great difficulty in turning the Coles supermarkets around, adding "they are a long way behind in the technology stakes".
"K-Mart is run down pretty badly, so a site is one thing, but rejuvenating a brand is another, so there are some great challenges," Corbett said.
It was a great pity that the business had not succeeded as it did hold some excellent assets, he said.
"But clearly, they have run down hill and that is very sad because there are many people in that Coles organisation who have been immensely loyal and who are long-serving people.
"I think the whole scenario is sad for lots of people."
Corbett said Wesfarmers had been a takeover-oriented company for some time but he was still surprised by its bid.
KKR was involved in a failed A$15.25 a share bid for Coles last year, which eventually opened the door to the sale of the retailer.
Woolworths chief executive Michael Luscombe said his company was interested in Target and office supplies store Officeworks.
Luscombe has not ruled out joining the rival bidding consortium led by KKR, and there have been rumours of another bid by UK-based Tesco.
Asked about possible interest from the US retail giant Wal-Mart, Corbett, who sits on its board, said: "I think Wal-Mart has got its own plans in the world, and I wouldn't imagine that there is any plans at this stage for Australia."
