News

It's taken more than two years, but Woolworths is finally close to securing a deal for its $1.5 billion-odd petrol business.

Sources said the retailer had honed in on an offer from British-based retailer EG Group, which was seeking to get a foothold in the Australian market by buying Woolies' chunky petrol station portfolio.

It is understood EG Group has been officially declared "preferred" and both parties are working towards a deal being announced as early as Tuesday.

EG Group's group counsel and company secretary Imraan Patel is said to be spearheading the talks and putting structures in place to turn the bid into a binding deal.

It comes after Woolworths had its bankers - Morgan Stanley and UBS - re-engage with trade bidders, following an unsuccessful attempt to sell the unit to BP. That deal fell over after running into stiff opposition at the Australian Competition and Consumer Commission.

Woolworths' thoughts immediately turned to an IPO, which was slated to happen as early as this year. However, it became apparent that a trade bid would enable a quicker and more smooth exit. When market conditions turned in recent weeks, it was full steam ahead on the mooted trade bid.

Street Talk first reported EG Group's emergence on the scene on September 25. The bidder is advised by Citi. Other strategic parties around the unit in recent weeks included another UK suitor, DCC.

US-based private equity firm TPG Capital will outlay at least $930 million to buy listed pet-care business Greencross, according to sources.

It is understood TPG Capital is offering at least $5.50 a share for the operation, as revealed online by DataRoom yesterday, after the company’s shares closed at $4.54 on Friday.

Greencross has been in the company’s data room assessing a purchase of the listed operation for several weeks and now a deal is expected to be announced by tomorrow.

DataRoom reported last week that TPG was about to embark on a $1 billion acquisition, thought to involve Greencross.

Greencross’s current market value is $547m and the acquisition price, including $268m in debt, is about $930m or more. It equates to 10.5 times earnings before interest, tax, depreciation and amortisation compared to its current 6.5 times EBITDA trading price.

Only a month ago, the stock was trading at $3.57 so any bid at $5.50 a share would be at a 50 per cent premium.

The bid comes as the money consumers are investing in pet care is increasing, although the industry is ripe for online disruption.

Shares in Greencross were worth more than $10 in 2014, but have fallen as the sector globally comes under pressure due to the growing dominance of online retailer Amazon.

Working for Greencross is Macquarie Capital and Allier Capital. TPG has UBS.

Greencross was a market darling in early 2016, when TPG made a bid to buy the business for $770m. This was only two years after the merger of Petbarn owner Mammoth Pet Holdings, of which TPG held a major stake, with Greencross.

Elsewhere, Westpac has hired Bank of America Merrill Lynch Australia managing director Adam Penny as its head of corporate development, as reported online by The Australian yesterday. His appointment comes as Westpac reports its results today and as some suggest it could indicate that the bank is gearing up for asset sales.

Mr Penny has been head of financial institutions at BAML Australia.

US-based private equity firm TPG Capital is tipped to be on the brink of spending $1 billion on the acquisition of an Australian company and most are pointing to pet care business Greencross as the outfit for which the buyout fund is about to pay up.

It comes with talk in the market this week that TPG Capital had its eye on a $1bn Australian prize and that the deal was about to be done.

Greencross seems to be the logical target, given the buyout fund has been in the data room with other parties assessing a purchase of the listed operation for several weeks.

Its current market value is $546 million and the expectation is that TPG would be offering a premium of as much as 30 per cent for a successful pursuit.

Factoring in $268m of debt takes the price tag to almost $1bn.

Market analysts yesterday had much to say about the price TPG was paying for Greencross, should that in fact be its target.

The concern is that although the amount of money consumers are investing in pet care is increasing, the industry is ripe for online disruption. Supermarkets and discount department stores are expected to penetrate the sector further.

Australia has one of the highest rates of pet ownership in the world, according to IBISWorld, which says more than 60 per cent of Australian households has a pooch or puss.

Revenue in the industry has been growing at more than 7 per cent annually and is likely to grow about 3 per cent in the next few years.

Shares in Greencross were worth more than $10 in 2014, but closed yesterday at $4.54 as the sector globally comes under pressure due to the growing dominance of online retailer Amazon.

Working for Greencross is Macquarie Capital and Allier Capital. TPG has UBS.

The latest speculation suggests TPG has fended off competition from Permira and BGH, which have also been in the data room conducting due diligence. The thinking is that TPG has pre-empted the process with its bid.

Greencross was a market darling in early 2016 when TPG Capital made a bid to buy the business for $770m.

This was only two years after the merger of Petbarn owner Mammoth Pet Holdings, of which TPG held a major stake, with vet business Greencross.

At that time, BGH Capital founding partners Ben Gray and Simon Harle were running Australia’s operations for TPG Capital so they know the target well. Quadrant Private Equity was also a former Greencross owner.

Now TPG’s Australian operations are run by former Champ Private Equity director Joel Thickins.

The Carlyle Group in recent months and Kohlberg Kravis Roberts are both understood to have looked at the business in the past, but are not thought to be currently circling.

Greencross is Australasia’s leading specialist retailer of pet food, pet-related products and pet accessories. It has more than 230 stores under the Petbarn, City Farmers and Animates brands and operates Australia’s largest veterinary services business, which has more than 160 clinics.

In the 2018 financial year, it posted a 51 per cent fall in its net profit to $20.7m, despite reporting a 7 per cent revenue lift and as it was weighed down from its vet clinic division and impairment costs.

Elsewhere, stockbroking and financial advisory firm Wilsons has lured former head of investment strategy at UBS Asset Management Tracey McNaughton to lead macro strategy in its strategy group.

Coles’s decisions to launch its popular Little Shop promotion and to delay the phasing out of single-use plastic bags has helped end its arch-rival’s long run of sales outperformance, with Woolworths posting its slowest store sales growth in two years.

Woolworths chief executive Brad Banducci called out both activities when he unveiled the latest trading performance for the nation’s biggest supermarket chain, which showed that like-for-like sales growth at its Australian supermarkets had skidded to 1.8 per cent for the first quarter, down sharply from just over 3 per cent the previous quarter.

It was also well down on the strong comparable sales growth Woolworths had enjoyed since late 2016, although Mr Banducci held out some hope for investors when he revealed there had been a return to improved momentum in September and October.

But it was clear from the trading results that outgoing Coles boss John Durkan had inflicted a flesh wound on Woolworths when he chose to hold on to his plastic bags for eight weeks after Woolworths had stripped all of its stores in late June, while the Little Shop promotion lured shoppers away from Woolworths.

“While it was a more challenging quarter for sales, customer and brand metrics were strong across the group, especially in Australian food, reflecting the underlying health of our business,” Mr Banducci said. “Australian food had a challenging start to the quarter with sales affected by our customers’ and team’s adjustment to the removal of single-use plastic bags as well as the impact of a competitor continuity program (Little Shop).’’

While other retailers blamed flat wages growth, sliding property prices, rising mortgages and booming energy prices, Mr Banducci said the volatile weather conditions on the east coast had disrupted consumer demand.

“Some of the drought issues ­affected all of our businesses in some of the more regional areas — NSW and some parts of Queensland,’’ he said.

Total sales for its Australian supermarkets were up 1.9 per cent to $9.87 billion, while for its drinks business, led by Dan Murphy’s, comparative store sales rose 1.7 per cent. Its New Zealand supermarkets booked a 4 per cent lift in sales and the loss-making Big W recorded a 2.2 per cent gain in same-store sales.

Big W had a big win with its online sales as the popularity of click and collect helped drive sales growth by 177 per cent for the quarter. The hotels business saw like-for-like sales up by 1.2 per cent. Its online operations, now housed within its tech arm ­WooliesX, posted online sales growth of 26 per cent.

However, it was the performance of its supermarkets that most investors were keeping an eye on and, despite the slower growth rates and the now domination of Coles with its higher sales growth of 5.1 per cent for the first quarter, shares in Woolworths rose 27c to $28.70 as the result was broadly in line with expectations.

The gap between Woolworths and Coles’s strong sales growth is now 3.3 per cent and comes as Wesfarmers prepares the $20bn demerger of Coles next month. Coles’s growth should help sell the demerger to investors, as new Coles boss Steven Cain spruiks the performance of the supermarket business.

Coles surprised the market with a 5.1 per cent sales jump for the first quarter. It marked the biggest underperformance for Woolworths against Coles in nine quarters. In the fourth quarter of 2016, Coles reported 2.9 per cent sales growth and Woolworths had -1.1 per cent, for a gap of 4 per cent.

But Mr Banducci attempted to assure analysts and the investment community.

“We certainly have seen a bounce back in our market share as we return to a more normal trading environment,’’ he said.

Global confectionery business Nestlé has launched the first three products by the new China incubator team and company’s own Totole brand during Nestlé China Innovation Day.

Xingshan is a new brand of ready-to-drink herbal drinks and soups that are made with traditional Chinese ingredients including rose, pomegranate, tremella and mushroom.

Nestlé Incubator also launched Muscle Hunt, a ready-to-drink high protein water for post-workout recovery, as well as Green Bite, a collection of customisable healthy snacks.

The FMCG giant is now leveraging new innovation platforms and internal incubators for faster product development, adapting to the rapidly evolving consumer tastes. Xingshan was launched in eight months and it will first be sold on e-commerce platforms. Nestlé R&D in China researched benefits of Chinese medicine and cuisine for several years and selected traditional ingredients carefully to maximise nutritional value.

“In response to the rapid changes in China’s Food and Beverage industry, Nestlé has accelerated the improvement and testing of its innovation business model over the past two years to create a multidimensional, sustainable innovation strategy,” said Rashid Aleem Qureshi, chairman and CEO of Nestlé Greater China.

“For over 150 years, Nestlé has been dedicated to the same mission: enhancing quality of life and contributing to a healthier future. Our innovation team, with over 100 ongoing projects, will bring consumers more choices through a variety of healthy products over the next two years,” he added.

Nestlé Incubator plans to fill the market gaps in China and pursue the Healthy China 2030 initiative. There’s a growing demand for healthy, natural and customised Asian products.

“Nestlé’s multidimensional innovation strategy is supported by three key levers: Besides developing the company’s basic operations through accelerated innovation and improvement, we are enhancing the consumer experience through various approaches including consumption patterns and consumption venues, addressing new market needs through Nestlé’s Incubator program,” explained Nini Chiang, CMO of Nestlé Greater China.

In early 2018, Nestlé launched its Incubator Team to expand its business and respond quickly to China’s market needs. The country is the second market to have an Incubator Team, after the US.

The boss of Woolworths has confirmed the rise of Halloween as a key commercial event, and which this year was the “biggest ever” for Australia’s largest supermarket chain.

It comes amid debate about how much the creep of American culture is responsible for the increasing popularity in Australia of the October 31 celebration, which sees groups of kids in fancy dress tramp between fake cobweb-hung homes looking for sweets.

Woolworths chief executive Brad Banducci told The Australian that although the sales data was still coming in from the retailer’s more than one thousand stores, it was “easily” the biggest-ever spending spree by shoppers on Halloween goodies.

“It was our biggest Halloween ever, it only happened yesterday and we need to see all the numbers but it easily will be our biggest Halloween ever, and it is part of a conscious effort as a team to focus on our customers’ key events and help them celebrate those events,’’ Mr Banducci said.

Last night, across Australian cities, children dressed up as everything from vampires, zombies and grim reapers to Star Wars stormtroopers and medieval plague doctors, knocked on doors and asked neighbours for chocolates.

Halloween is increasingly spawning street parties and community events and many Australians point to American influence for the celebration’s strong growth in recent years, and for its growing commercialisation.

Australia still lags well behind the US, the home of Halloween.

According to retail experts in the US, more than $US10 billion is spent each year by Americans on confectionery, costumes and Halloween decorations. While more than $US3 billion is spent on costumes, and $US2.6bn on confectionery, Americans also shell out around $US400m on Halloween greetings cards.

Australian spending is much more modest, but Woolworths did expect in the lead up to Halloween to sell more than 200,000kg of Halloween pumpkins, up more than 20 per cent on last year.

Mr Banducci said Halloween was an example of the new celebrations the supermarket chain was happy to cater for.

“So we have also had a terrific year more recently with (the Indian) Diwali and (Chinese) Lunar new year.’’

There will be pumpkins there somewhere. Woolworths boss Brad Banducci in one of the retail giant’s Sydney supermarkets. Pic: John Feder.
There will be pumpkins there somewhere. Woolworths boss Brad Banducci in one of the retail giant’s Sydney supermarkets. Pic: John Feder.
Woolworths invested heavily in in-store promotions and displays for Halloween in the month leading into the big night, with pumpkins and chocolates featuring heavily as well as other novelty foods such as pumpkin-flavoured bagels.

“It was big, but we still have a lot of work to do to analyse exactly how big it is, but certainly not as big as Mother’s Day or Father’s Day.

“And we are just getting better at executing (Halloween) … and also having a bit more fun in the store, you want to make it an enjoyable experience for everyone, giving permission for our teams to get behind an event and enjoy an event and I think it is good for our team and I think customers feel that.’’

Halloween is also a boon for farmers, with pumpkin growers doing a brisk trade when, normally, pumpkin is enjoyed by Australians in winter months.