Investor Relations Case Study: Wesfarmers Takeover of Coles

The 19.7 billion Australian dollar takeover of Coles Group by Wesfarmers is an interesting case study on Investor Relations.

It is a complex deal with Wesfarmers offering existing Coles shareholders a choice and mixture of shares and cash for Coles shares.

Wesfarmers is offering Coles shareholders’ protective shares. Many people are very curious to know what I think of this and whether this a good/bad thing for Coles and its shareholders?

From an Investor/Shareholder view:

I can't really see it as too much of a bad thing especially if they are paying for the puts. From the point of the view of a shareholder you are essentially getting that downside protection for free. However Wesfarmers would have to pay for that protection which they would have to expense so overall I think the value there is neglible.

From an IR view:

It is very clever because it reduces the perceived risk in a falling market and market volatility.

The only downsize, is investor communications is expensive and often confusing because it is quite complex.

Coles has a large shareholder base of small retail ‘Mum & Dad” investors because of their original discount card (eg: you got a discount at their supermarket and retail outlets if you were a shareholder) so communicating the message to this largely unsophisticated group is complex and difficult.

They later phased out the discount card claiming it was too expensive to administrate. See my original article here on shareholder discount cards.

What both Coles and Wesfarmers have done well is set up 1300 information lines for confused shareholders to call and speak to a real person.

Even though the lines are staffed and run by a call centre, and you speak to a call centre person who works off a script, you still get to speak to a warm body and a real live person.

My wife is an investor in Coles, so I've seen first hand all the investor communications and it has been first class.

Our action will be to accept the offer and take as much Wesfarmers stock as we can.

I've always believed in the Wesfarmers story because of the quality of management and their success with Bunnings retail hardware.

Two important points. I studied Wesfarmers as a case study in my MBA in 1997 and loved the story but never took action to invest.

I love renovating old houses and have been a Bunnings customer for nearly 20 years. I love their range, quality and service. From a marketing perspective, their advertsing and promotions are first class.

So this deal ticks all the boxes for me. You make up your own mind and seek independent professional advice because I am not qualified or licenced to offer investment advice.

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