MELBOURNE - Australia's Woolworths is in talks with a number of potential partners about a bid for Coles Group, a source said, amid reports it was leaning towards UK retailer Tesco rather than a KKR-led consortium.
The Australian newspaper reported yesterday that Woolworths was talking to Britain's largest retailer Tesco as part of its ambitions to secure parts of the Coles group, which has put itself up for sale.
The source declined to rule out Tesco as one of the interested parties, which has been the subject of media speculation. "Discussions are progressing with a number of parties" about potentially linking up for a bid for Coles, the source said.
Woolworths did not have a favourite potential partner as yet but saw itself as key to enhancing another bid for Coles, the source said.
Any Woolworths bid would compete with a A$19.7 billion ($22 billion) takeover offer from conglomerate Wesfarmers and create a third bidding force in addition to the KKR group, which may still bid without partnering a listed company.
"Things are still very much alive for KKR," a second source said yesterday when asked about a KKR bid for Coles.
The KKR consortium was still talking to Woolworths but was also exploring the option of making a higher cash bid or setting up a listed vehicle which would give Coles shareholders a scrip option, the source said.
Woolworths chief executive Michael Luscombe said last week the retailer was having talks with "a variety" of parties, but at present was planning to examine Coles' books by itself.
Woolworths is interested in acquiring the Officeworks business supplies chain and discount clothing retailer Target, but it would be prevented from acquiring Coles' core supermarkets and liquor business because of competition concerns.
There has been speculation that Woolworths could team up with the KKR consortium of six private equity firms to bid for Coles. The KKR consortium, which includes Bain, CVC, Blackstone, Carlyle and TPG, has not made a firm bid but said it expected to match or top the Wesfarmers offer.
Analysts have said Wesfarmers has an advantage with shareholders since the scrip portion of its bid offers capital gains tax relief, which a cash-only bid cannot match.
A foreign retailer such as Tesco, or a private equity group such as KKR, can only offer cash unless it teams up with a listed Australian company that can offer its shares as part of a bid.
