Saturday, July 7

Is a Ballina holiday a better punt than sticking with Wesfarmers and Coles?

There's a lot at stake with the Wesfarmers bid to revive the Coles group. Not just the quoted $22 billion takeover cost, and the further $3 billion Wesfarmers plans to pump into the ailing businesses. A mere bagatelle. What's at stake is my domestic harmony.

Our association with the Wesfarmers conglomerate began after Merry's father passed on. Sorting his papers, we came across a certificate for his membership of the Westralian Farmers Co-Operative – which presumably entitled him to discounts on fertiliser, insurance and the like when he was farming in WA's Great Southern.

Over the years, we've ridden along as the old farmers' co-op morphed into a public company, and then into Australia's most successful corporate conglomerate. For 20 years, it's delivered compound annual growth of 29 per cent. My advice to hang on to the shares made me something of a hero in my household.

Corporate conglomerates were on the nose after so many collapsed in the late 1980s. With a little creative accounting, they made it easy for the spivs then winning acclaim as “entrepreneurs” to shuffle money around, then slide it out from under shareholders' eyes and into their own pockets.

But Wesfarmers was different, and much of the credit goes to chief executive Michael Chaney, who retired two years ago. Some retirement. He's now president of the Business Council of Australia, chairman of the National Bank and chancellor of the University of WA, among many other roles – but his management and accounting structures remain in place.

Chaney is also a man with a strong social conscience who appears to have won John Howard's trust, and may well have helped steer the Prime Minister to a more active role in correcting Aboriginal disadvantage and in accepting the possibility of man-made climate change.

I'm nervous about the Coles buy, and my wife Merry may be more rational wanting to sell to pay for a holiday. But we don't have many shares – the proceeds may have covered petrol to Ballina, plus a week in a caravan park.

And we could not have hoped for the $45.73 quoted as Wesfarmers' last sale price when the takeover deal was thrashed out.

That price came from a late mystery order which allowed Coles and Wesfarmers to agree on a takeover offer said to be worth $17.25 per Coles share, consisting of $4 cash and 0.2843 of a Wesfarmers share, as well as Coles shareholders retaining the next dividend.

If Wesfarmers shares slip, so does the value of the bid. And so does my standing as my wife's financial advisor. Perhaps we should go to Ballina.

The takeover is by no means a done deal. By the close of trading on Friday, July 6, Wesfarmers shares had fallen to $41.05, knocking $1.5 billion off the value of the bid and Coles shares down to $15.10. Either Wesfarmers or Coles can walk if Wesfarmers shares sit below an average $41.16 over any three weeks before the scheduled completion in October.

Even if the deal goes through, sticking with Wesfarmers seems a bit of a punt. Wesfarmers points to the success of its Bunnings hardware chain – but will experience in “category-killer” hardware stores be repeated in Coles' key businesses of supermarkets, discount stores and liquor retailing?

Supermarket retailing requires a special flair they don't teach in MBA courses. It's the sort of knowledge Woolies executives absorbed every day as they walked through Woolies' Town Hall store to their Sydney offices.

It's the knowledge Coles executives may have bypassed as they worked in their ivory tower headquarters, the "Battlestar Galactica" in Melbourne.

(In fairness, that was a culture Coles chief executive John Fletcher tried to change, and in time we will acknowledge his successes, and not just note where he failed.)

During the years it would take Wesfarmers to turn Coles around, will shareholders be rewarded with a rising share price? Even if the punt succeeds, the payout may be years away.

Perhaps I'll get on the net and check out a few holiday destinations.

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