The Coles Group Ltd (ASX: COL) share price has dropped heavily after rumours regarding a potential takeover tilt at the Greencross business.
Greencross includes one of Australia’s largest vet and pet retail businesses (Greencross Vets and Petbarn). Coles is Australia’s second largest supermarket business.
Greencross acquisition on the cards?
Coles said in an update that it noted media speculation about a potential acquisition of Greencross Pet Wellness Company.
The supermarket business confirmed it’s in discussions with TPG about potentially buying the business and it’s currently going through due diligence.
Coles said that as one of Australia’s leading retailers, with a strong balance and debt capacity, it regularly assesses strategic opportunities that may “complement its existing business and create value for shareholders”.
The retail giant said that it would only pursue an acquisition where it is satisfied that the transaction is strategically compelling and capable of delivering attractive shareholder returns.
Coles noted that discussions with TPG remain “incomplete and there is no certainty that a transaction will proceed”. It will continue to keep the market informed in accordance with its continuous disclosure obligations.
Kalgoorlie supermarket knocked back
In a separate ASX announcement, investors learned today that the ACCC opposes Coles’ acquisition of a supermarket and liquor site in Kalgoorlie.
The ACCC said Coles must not carry out a proposed acquisition of a leasehold interest over a new supermarket and liquor site in Kalgoorlie-Boulder, Western Australia.
Coles intended to acquire the lease for a vacant site at 95-106 Great Eastern Highway, in a suburb of Kalgoorlie-Boulder. Coles wanted to turn the site into a full-line supermarket and liquor store.
After completing its phase 2 assessment, ACCC said it thinks it would substantially lessen competition in grocery retailing in Kalgoorlie.
Currently, in Kalgoorlie, there are four large, full-line supermarkets – a Coles, a Woolworths and two independent stores (plus two smaller independent supermarkets).
The ACCC suggested Coles’ proposed acquisition would likely lead to the exit of an effective independent full-line competitor.
Final thoughts on the Coles share price
Acquiring the Greencross business would likely require a sizeable price target to make TPG accept the bid. A high price means the business is paying for it and potentially not getting great value, though Coles did say it would only go ahead if it was happy with the price.
That deal would help grow and diversify Coles’ earnings, though I’m not sure how much growth the pet industry has, particularly the retailing side of things – there’s a lot of competition in the space with names like Pet Circle aiming to grow market share.
There could be benefits with things like scale, Coles’ retailing advantages, bringing Greencross’ private brands to Coles supermarkets, and expanding the Greencross network.
I wouldn’t say the Coles share price is a bargain at this level, but it is a lot cheaper than it was last week, so I wouldn’t mind buying a bit at this level, but I’d wait for better value before significantly buying a lot of shares.
