Q&A... Neville Spry and David Feetham on Coles/Wesfarmers
Neville Spry and David Feetham answer Business Spectator's questions on what happened behind the scenes of Wesfarmers' takeover of Coles.
Neville Spry and David Feetham led the team for Gresham Partners that was a joint advisor to its half owner, Wesfarmers. Other key members of the team were James Graham and Chris Branston, and up to nine people were involved at various stages.
Spry and Feetham jointly responded to these questions sent by email.
With the late withdrawal of your private equity partners, just how close was this deal to falling over?
The deal with private equity was obviously close to falling over and did fall over. About a month before that occurred, Wesfarmers began to consider its fallback options and the "go-it-alone" strategy. When the actual question of how to progress arose, Wesfarmers management and advisors were well-prepared and the board had been exposed to that thinking. Accordingly, it was not quite as big an issue as it might otherwise have seemed. It still needed some serious work in a compact period -- given the proximity of the stepping back of private equity to the date that final bids were due -- around four days. Wesfarmers was always very committed to acquiring Coles
Was the credit squeeze the biggest obstacle to this deal?
It was not an obstacle as far as Wesfarmers was concerned. The credit squeeze clearly impacted upon the prospects of some of the mooted competition for Wesfarmers, but not Wesfarmers itself. It should be noted that the KKR consortium began to splinter before the onset of the credit crisis and without reference to it. The remaining members of that consortium were reputedly significantly constrained by the timing of the credit crunch.
When Wesfarmers lost its private equity consortium members due to the issue with debt cost and availability for leveraged acquisitions, Wesfarmers was still able to proceed on its own and raise the largest corporate loan in Australian history ($A10bn).
Do you think you would have got this over the line had the markets not been so frustrated with Coles management?
There was always a compelling rationale for joining the retail activities of Wesfarmers, being Bunnings, with the Coles retail businesses. It is little appreciated that Bunnings is the third largest retail business in Australia in its own right and makes a large contribution to Wesfarmers' earnings and growth profile. With such a rationale and a scrip-heavy offer from a strongly performing Australian company paying significant fully franked dividends, there was always confidence that the board and shareholders would find the offer appealing.
What has been the most satisfying aspect of this deal for you?
It is always satisfying to help a client achieve its acquisition ambitions, particularly for a transaction which makes so much sense. We look at a lot of possible transactions on the buy side, but for various reasons, mainly value considerations, we complete far fewer.
Will this be your biggest pay cheque from an M&A transaction?
No comment.
How much will you receive?
Ditto.
What's the pipeline of deals looking like?
Strong in the short to medium term but with some likely material market instability ahead as the full ramifications of the credit crisis work their way through global markets. Such instability can also be good for transaction volume, provided credit is available from the financial system to enable companies to take advantages of the opportunities that will arise. As a buyer class, private equity is likely to be considerably less active in deals of $A3bn-plus over the next six months at least.
Should all advisors involved in the transaction - bidder and target – be credited in the M&A league tables?
League tables are often, some would say routinely, rorted. This usually occurs where parties get themselves attached in order to claim league table credit and where their roles are peripheral at best. In this transaction, the role of the advisers involved (MBL, Gresham, DB and LCW) could certainly not be described as peripheral. All parties were materially hands-on and full-on for an extended period of 7 to 15 months. Accordingly, all of the advisors have played an active role in what has been a complex and time consuming transaction.
If you weren't in M&A, what would you be doing?
(Feetham): Spending more time with the family. Gardening, travelling, going to the theatre and looking for some form of educational role.
Spry and Feetham jointly responded to these questions sent by email.
With the late withdrawal of your private equity partners, just how close was this deal to falling over?
The deal with private equity was obviously close to falling over and did fall over. About a month before that occurred, Wesfarmers began to consider its fallback options and the "go-it-alone" strategy. When the actual question of how to progress arose, Wesfarmers management and advisors were well-prepared and the board had been exposed to that thinking. Accordingly, it was not quite as big an issue as it might otherwise have seemed. It still needed some serious work in a compact period -- given the proximity of the stepping back of private equity to the date that final bids were due -- around four days. Wesfarmers was always very committed to acquiring Coles
Was the credit squeeze the biggest obstacle to this deal?
It was not an obstacle as far as Wesfarmers was concerned. The credit squeeze clearly impacted upon the prospects of some of the mooted competition for Wesfarmers, but not Wesfarmers itself. It should be noted that the KKR consortium began to splinter before the onset of the credit crisis and without reference to it. The remaining members of that consortium were reputedly significantly constrained by the timing of the credit crunch.
When Wesfarmers lost its private equity consortium members due to the issue with debt cost and availability for leveraged acquisitions, Wesfarmers was still able to proceed on its own and raise the largest corporate loan in Australian history ($A10bn).
Do you think you would have got this over the line had the markets not been so frustrated with Coles management?
There was always a compelling rationale for joining the retail activities of Wesfarmers, being Bunnings, with the Coles retail businesses. It is little appreciated that Bunnings is the third largest retail business in Australia in its own right and makes a large contribution to Wesfarmers' earnings and growth profile. With such a rationale and a scrip-heavy offer from a strongly performing Australian company paying significant fully franked dividends, there was always confidence that the board and shareholders would find the offer appealing.
What has been the most satisfying aspect of this deal for you?
It is always satisfying to help a client achieve its acquisition ambitions, particularly for a transaction which makes so much sense. We look at a lot of possible transactions on the buy side, but for various reasons, mainly value considerations, we complete far fewer.
Will this be your biggest pay cheque from an M&A transaction?
No comment.
How much will you receive?
Ditto.
What's the pipeline of deals looking like?
Strong in the short to medium term but with some likely material market instability ahead as the full ramifications of the credit crisis work their way through global markets. Such instability can also be good for transaction volume, provided credit is available from the financial system to enable companies to take advantages of the opportunities that will arise. As a buyer class, private equity is likely to be considerably less active in deals of $A3bn-plus over the next six months at least.
Should all advisors involved in the transaction - bidder and target – be credited in the M&A league tables?
League tables are often, some would say routinely, rorted. This usually occurs where parties get themselves attached in order to claim league table credit and where their roles are peripheral at best. In this transaction, the role of the advisers involved (MBL, Gresham, DB and LCW) could certainly not be described as peripheral. All parties were materially hands-on and full-on for an extended period of 7 to 15 months. Accordingly, all of the advisors have played an active role in what has been a complex and time consuming transaction.
If you weren't in M&A, what would you be doing?
(Feetham): Spending more time with the family. Gardening, travelling, going to the theatre and looking for some form of educational role.
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