Retail industry supports Wesfarmers bid for Coles

While the outcome of the Wesfarmers bid has been clouded by the sharp fall in the West Australian company’s share price, the takeover has backing from the majority of 200 retail industry respondents in an online survey.

In the survey, 67% of respondents agreed that the takeover of the under-performing Coles Group businesses was a positive development for the retail industry while just 17% thought it was a negative or backward step.

Reflecting the fact that the takeover is prospectively the largest on-shore corporate acquisition in Australian history, a relatively large 17% of respondents acknowledged they were uncertain whether the Wesfarmers bid was good or bad for the retail industry.

Respondents were evenly divided on whether or not the takeover should be re-shaped by requiring Wesfarmers to divest any of the individual Coles businesses, a question currently being examined by the Australian Competition and Consumer Commission.

According to the survey, 43% of retail industry respondents want Wesfarmers to be required to divest at least one of the businesses while 41% did not believe the acquisition needed to be modified.

Views on which of the Coles chains should be divested to enhance retail competition in Australia were divided with 26% and 21% of respondents respectively suggesting that the discount department store chains, Kmart and Target, should be excluded from the acquisition.

The divestment of liquor stores was supported by 20%, Officeworks by 15% and the supermarkets and fuel businesses by 18%.

The supermarket and fuel result was higher than expected and possibly reflects concerns about the dominance of the chain retailers, Coles and Woolworths, in fuel retailing.

Asked how long it was likely to take Wesfarmers to achieve a significant and sustainable improvement in the trading performance of the Coles Group businesses, 43% of the industry respondents forecast a three year turnaround period.

Twenty five per cent think Wesfarmers could achieve improvements in two years and 7% within a year while 14% expect the turnaround to take five years and 11% predict a sustainable recovery to take more than five years.

Despite the challenge of reinvigorating the Coles Group businesses, 46% of survey participants said the acquisition would have a positive impact on the performance of Wesfarmers existing retail business, Bunnings Warehouse.

The number who thought the takeover might have a negative impact on the Bunnings Warehouse hardware chain was 25% with 28% unsure about the implications.

Recognising that the Wesfarmers share price fall has led to speculation that the takeover bid might not proceed, the Inside Retailing Online survey asked respondents if Woolworths should be allowed to acquire Officeworks, Target and some Kmart stores.

A large majority of survey participants opposed Woolworths acquiring the discount department store chains but most were less concerned about Australia’s biggest retailer buying Officeworks.

Sixty three per cent opposed Woolworths buying Target and some Kmart stores while 31% believed Woolworths should be allowed to buy the discount department stores if the Wesfarmers takeover bid collapses.

Just 7% of respondents had no opinion either way on the Target/Kmart question.

For Officeworks, 57% of survey respondents agreed there should not be any impediment to Woolworths buying the chain if the Wesfarmers takeover collapsed while 39% opposed such a deal.

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