WES - Wesfarmers Limited

[sassa]

Sorry,forgot link on last posting.Here it is-

http://www.moneymorning.com.au/20080319/debt-problems-spread.html

 

[josjes]

Wesfarmers requested trading halt due to media speculation about a potential equity capital raising.

The Australian Financial Review newspaper today reported Wesfarmers was planning a multi-billion dollar equity raising to refinance short term debt.

That would be bad news for current share holders wouldn't it ? Dilution of capital base etc.

Does anyone know snippet of the capital raising and what's it likely to be ?

 

[Kauri]

19 March...A story I heard... can't find anything solid... yet... but ...
Wesfarmers may have to pay a hefty credit premium to refinance $A4 bln in debt for its Coles Group takeover.
Cheers
...........Kauri

Maybe it's coming together??
$4bln at least is potentially needed from somewhere, as I haven't heard of them refinancing... yet..

Cheers
..........Kauri

 

[reece55]

Maybe it's coming together??
$4bln at least is potentially needed from somewhere, as I haven't heard of them refinancing... yet..

Cheers
..........Kauri

Well, looks like WES decided the cost of equity would be a lot cheaper than that of debt - a sensible decision, especially with their interest cover at the moment! Here is what we have all been looking for (taken from WES's announcement this morning):

The $4.0 billion refinancing will be completed through a combination of:
•
A $2.5 billion equity issue to be conducted as a 1 for 8 accelerated pro-rata entitlement offer to shareholders at an Offer Price of $29.00 (“Entitlement Offer”). The Entitlement Offer has been fully underwritten;
•
New commitments on customary terms to refinance the remaining $0.8 billion of the Coles acquisition bridge loan until December 2009, which has been secured at average margins of approximately 100 bps including fees; and
•
The US$650 million (A$0.7 billion) 5-year bond issue announced on 4 April 2008.
In addition, Wesfarmers has taken the opportunity to secure commitments to renew its $1.0 billion working capital facility. The average margin on all one to three year debt financing is less than 100bps including fees.

In the end, this is a positive way of dealing with their issues. But the equity is at a substantial discount to the last trade of about $37.....

Cheers

 

[SenTineL]

this is for existing shareholders only?

so no new shares to new investors.......................??

 

[reece55]

this is for existing shareholders only?

so no new shares to new investors.......................??

Yep, very sensible little strategy on behalf of the WES board......

Do you really think they would open up a placement to non people who weren't already shareholders when the pricing is 20% below market...

I expect the share price to open up and watch the shorters squeal..... It will be interesting..

Cheers

 

[ROE]

I stay away from WES for now .. too much risk for little rewards.
what sort of company initially want to buy Office works, k-mart and a bit of food and liquor all up $4-$5 Billion ..then the private equity walk away because of higher credit ..WES decided to add another 12B to take on the whole lot.

They are clearly not in the financial position to do so and do it any way
they are getting away from their conservative approach and that got me worry
and they are getting away when higher credit hit left and right.

plus Coles is going backward... sale rose 3% and inflation at 4%? aren't they going backward by 1% ??

ACCC also announce today they going to make it easier for oversea chain to setup supermarket to counter Coles and WOW dominant, the environment going to get tougher going forward not easier.

Until WES can show me the money they can run Coles and pay down substantial debt I'm not backing them

my 2 cents.

 

[hangseng]

I stay away from WES for now .. too much risk for little rewards.
what sort of company initially want to buy Office works, k-mart and a bit of food and liquor all up $4-$5 Billion ..then the private equity walk away because of higher credit ..WES decided to add another 12B to take on the whole lot.

They are clearly not in the financial position to do so and do it any way
they are getting away from their conservative approach and that got me worry
and they are getting away when higher credit hit left and right.

plus Coles is going backward... sale rose 3% and inflation at 4%? aren't they going backward by 1% ??

ACCC also announce today they going to make it easier for oversea chain to setup supermarket to counter Coles and WOW dominant, the environment going to get tougher going forward not easier.

Until WES can show me the money they can run Coles and pay down substantial debt I'm not backing them

Climes 'Stockval' agrees with you. Latest out has Wesfarmers potemtially valued at around $27 in 2009 if it keeps tracking as it has been of late.

It will be interesting to see what the market does when the $29 issue comes out. I can't see the current $36 holding.

 

[butterchops]

So given what hangseng and ROE have mentioned, whats the verdict on the 1 for 8 share offer? Worth the investment or too risky?

Not sure whether WES presents a sound long term investment at the moment. Current share price is $38.12 so it seems there has been some short term boost from the share offer. At the very least this offer could give reasonable short term returns?

 

[questionall_42]

It will be interesting to see what the market does when the $29 issue comes out. I can't see the current $36 holding.

SP has held above $36 since it came out of the trading halt. Strong vindication for the 1 for 8 entitlement offer - no tanking in the SP.

So given what hangseng and ROE have mentioned, whats the verdict on the 1 for 8 share offer? Worth the investment or too risky?

Not sure whether WES presents a sound long term investment at the moment. Current share price is $38.12 so it seems there has been some short term boost from the share offer. At the very least this offer could give reasonable short term returns?

The concept of a long-term investment is so incredibly dependent on how you define "long". One year, 5 years, forget it and hold it forever... Wesfarmers have a great record and I for one believe that Coles will turn around under their direction. However, the only reason why I am going to take this offer up is that it offers immediate returns - the sp will not tank after the issue; if it does decrease, it won't be below $29 - you have an immediate "risk free"(?) return on investment.

Good luck.

 

[ROE]

I'm thinking of shorting WES once it reach $40 ...they have massive interest bill and I cant see they grow Coles more than 10% a year with WOW keep stalking them.

I cant say for anyone else but I personally hardly shop at Coles knowing their dirty tactics about price manipulation and discount, and the stuff about Coles express fuel last week certain re-enforce my believes all along and I think a lot of people treat Coles with caution.

Until WES can change the whole Coles culture (it could take years or never will) it going to be tough for Coles to take on WOW and reclaim market share.

I reckon WES may underestimate how hard it is to turn around the culture
and building an IT logistic system that can rival WOW.

 

[ROE]

Man Coles performance is shocking despite all the talk up.
nearly $17 Billion in Revenue and cant even make 500M of EBIT
it's like 2-3 cents Coles make in a every Dollar turn over before interest & tax

How much did WES pay for Coles? $15 Billion or something
let see if interest was at 8% on 15B it's like 1B plus in interest payment alone
but lucky for WES it didn't borrow that much so down goes the return on equity rate... they wont have much equity left if Coles keep performing like this.

That $29 buck in equity raising start to look real shaky ...

 

[ROE]

Let me keep you guys inform on WES and not broker

I smell fishy

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=97BE9F03-1871-E587-E118FD73DA3E6E40

 

[bellenuit]

Can anyone suggest why the Wesfarmers Partiallly Protected Shares (WESN) are trading only marginally above, or even sometimes at a discount to, the Wesfarmers Ordinary Shares (WES). For instance, today they closed at a discount: WES = $29.28 and WESN = $29.11.

Considering that WESN have exactly the same entitlements as WES in every respect (dividends, voting rights etc.), can be converted at the option of the shareholder to WES shares at anytime at no cost, but additionally have a variable degree of price protection when WES is trading under $43.92, they should command a substantial premium IMO. These are the key terms:

If the two month VWAP for Wesfarmers Ordinary Shares is greater than $35.14 but less than $43.92 at the date of the Lapse Notice, holders of Wesfarmers PPS will receive a bonus issue of Wesfarmers Ordinary Shares (up to 0.25 Wesfarmers Ordinary Shares per Wesfarmers PPS) such that the total value of Wesfarmers Ordinary Shares received will be $43.92. If the two month VWAP for Wesfarmers Ordinary Shares is greater than $43.92, holders of Wesfarmers PPS will not receive any bonus issue.

However, if the two month VWAP for Wesfarmers Ordinary Shares is below $35.14 on the date of the Lapse Notice there is no additional price protection and Wesfarmers PPS Holders will receive the maximum bonus issue of 0.25 Wesfarmers Ordinary Shares per Wesfarmers PPS.

As I read the above and it corresponds to the examples in the prospectus, you are guaranteed a minimum $43.92 in WES shares for each WESN at the lapse date when WES is between $35.14 and $43.92. When WES is trading under $35.14 then you will get 1.25 WES for each WESN at lapse date conversion. So at today's closing price of $29.28 for WES (assuming that at conversion time that was the two month VWAP for WES) each WESN would convert to 1.25 WES, or $36.60 in share value. Yet it is only commanding $29.11 in the market.

I don't understand why it doesn't command a premium of 25% of the WES price, when WES is trading under $35.14 and a gradually reducing premium when WES is above $35.14, cutting out when WES reached $43.92.

The Lapse Date is about 4 years following the WESN issue (so 3.5 years from now) and may be extended if the ASX200 index sits under 6,500 around that time. So there is a timing issue, but that should be immaterial to the premium it should command. The only clause in the Ts&Cs that worries me is the following, but I can't see how that might override the conversion terms mentioned above.

In the event that additional shares are issued in respect of Wesfarmers PPS, the total number of additional shares to be issued will be up to approximately 38.5 million Wesfarmers Ordinary Shares.

Thoughts, anyone?

 

[bellenuit]

I should clarify that the conversion to WES shares at the discretion of the shareholder (2nd paragraph) prior to the Lapse Date is a 1 to 1 conversion. The conversion rates in italics from the Ts&Cs related to conversions initiated by Wesfarmers at the Lapse Date.

 

[3MT]

Let me keep you guys inform on WES and not broker

I smell fishy

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=97BE9F03-1871-E587-E118FD73DA3E6E40

here's another perspective on the Coles acquisition. they are getting the right team on board.

http://www.insideretailing.com.au/articles-page.aspx?articleType=ArticleView&articleId=3709

You can only steer a big ship slowly. There is much more potential in coles than woolworths only because coles has so much more to improve on.

interest on debt is a concern though.

 

[noirua]

I've been holding on to Wesfarmers for a few years and just look at this mixed up giant as being several years away from sorting the Coles situation out.
Meanwhile, they pay a $2.05 fully franked dividend which works out as good interest at $29.28 a share, stock price.

 

[Moneybags]

I've been holding on to Wesfarmers for a few years and just look at this mixed up giant as being several years away from sorting the Coles situation out.
Meanwhile, they pay a $2.05 fully franked dividend which works out as good interest at $29.28 a share, stock price.

Exactly, which is why I bought another swag on Friday, could go lower of course but anywhere around $29.00 (recent entitlement price ) is fair value IMO.

MB

 

[chops_a_must]

Exactly, which is why I bought another swag on Friday, could go lower of course but anywhere around $29.00 (recent entitlement price ) is fair value IMO.

MB

I wouldn't be surprised at all if they have to cut their divvy to pay down debt. I think that would be prudent.

 

[Moneybags]

I wouldn't be surprised at all if they have to cut their divvy to pay down debt. I think that would be prudent.

Fair comment chops, I wouldn't be surprised either......but I'm happy with my purchase for now.......not quite bottom drawer material in this climate.

MB