Thread: Wesfarmers scrape for cash.

To be perfectly honest I wouldn't miss either of them if they go belly up

Belly Up...????
What about the poor investors? And most of us will have investments made by our super companies. No..No.. not another one

My thread is not to say they are in danger of going under. They are a strong company with good asset backing, it just means that they might have been a bit ambitious in their 20 billion buy of that financial dog of a group Coles - Myer.

The recent interest rate rises does not help but the main problem I believe is the tightening of monetary policy making it that much harder to refinance a loan that helped them add to their cash to buy the Coles - Myer group. The sub prime fiasco or as it should be called the junk home loans problem is having some effect and as a result banks and re lenders are requiring more equity in any loan they are lending to.

This I believe is the reason all Wesfarmers subsidaries lke Bunnings and Coles which have a hugh cash flow positive balance is cheap finance for them.

It is one of the reasons Allan Bond purchased Castlemaine Breweries, the Fourex brand. No deliveries or very little credit was given to their customers, the big hotels etc, so they were in positive cash flow that the brewery did not have to repay to their raw goods supplier for more than 60 days. However, it did not help Bond in the end, but it did buy him some time.

Coles, do not usually pay their suppliers for more than 90 days, cheap money, I suggest Bunnings would be screwing their suppliers as well as well as their customers.

My guess is that Wesfarmers bought Coles thinking that they were an underperforming company and that they could turn them around to be a profitable asset.

The timing was unfortunate with the credit squeeze, rising interest rates and the Australian economy poised for a slowdown (or recession?).

It will be tough for Wesfarmers to make the Coles deal work in the short term.

I would not like to see Wesfarmers go under as this would leave Woolies with a monopoly. What we need is more supermarkets and more hardware stores to give Bunnings some competition.

What we need is a Trades Practises Act that doesn't favour big business to the exclusion of smaller businesses. The TPA should be an anti monopolist Act.

Yeh! it's all the "real" hardware stores that are going belly up, my Local Thriftylink is closing, the site has been a hardware store for 40 years. I asked why, answer can't compete with Bunnings, god help us when we only have Bunnings

Wesfarmers called a trading halt to complete a book build prior to a 1 for 8 renouncable rights issue. This had been forshadowed for some time, and means the Coles purchase is part funded by equity and not by debt. The halt is a nothing event, they just needed to stop the flow of paper to get the offer sorted, so what, they are a strong company with no suggestions of a cash squeeze.

Originally Posted by chrisrjones5456

My guess is that Wesfarmers bought Coles thinking that they were an underperforming company and that they could turn them around to be a profitable asset.

The timing was unfortunate with the credit squeeze, rising interest rates and the Australian economy poised for a slowdown (or recession?).

It will be tough for Wesfarmers to make the Coles deal work in the short term.

I would not like to see Wesfarmers go under as this would leave Woolies with a monopoly. What we need is more supermarkets and more hardware stores to give Bunnings some competition.

Wesfarmers are not expecting the Coles division to "turn around" for 5 years. They are injecting around another $1billion per year, during this 5 year period.

OfficeWorks and Bunnings have been grouped under the same Wesfarmers division (the 'Home Improvement and Office Supplies' division). This means they will be sharing very similiar (if not the same) management and resources. They are seen by Wesfarmers to be that similiar (ie: both "warehousing/mega-store" style stores,) that Wesfarmers is considering combining OfficeWorks and Bunnings stores in some locations. How well that would work is definately yet to be seen. Perhaps it would be good picking up a lawn mower with that new ream of paper!

I think one thing that is for certain, and that is that Coles will not disappear. Everyone always needs to buy food, no matter what the economy is doing. And when the economy is riding high, people will shop at K-Mart, Target etc...

Well performing Execs from various other Wesfarmers divisions have been placed behind a desk in Melbourne to help this turnaround, and the new overall CEO of the Coles division starts next month.

I don't think a price rise at Bunnings would have much to do with the Coles acquisition.

Also, if Wesfarmers didn't stick their neck out and grab the Coles group, it was then destined to be 100% foreign owned. Then people would have been whinging about another major Australian company going overseas. Be glad that its owned within our borders!

My 2c....

Originally Posted by China

Yeh! it's all the "real" hardware stores that are going belly up, my Local Thriftylink is closing, the site has been a hardware store for 40 years. I asked why, answer can't compete with Bunnings, god help us when we only have Bunnings

Bunnings have two large stores in the Darwin / Palmerston area ,I was up there last week and noticed that the Darwin Mitre 10 store was closed . think Bunnings have killed that one off .
There maybe a Mitre 10 in Palmeston still ,If there is and it goes under Bunnings will be the only major hardware in Darwin.
That leaves Trade Tools Direct and Territory Saws and Hardware , to kill off.
Territory Saws and Hardware is a small family Hardware store that has been trading for 25 years or so , they are the only people in Darwin that have the machinery to sharpen saws and the like ,I would hope that they can survive the Bunnings assault.

Originally Posted by johnc

Wesfarmers called a trading halt to complete a book build prior to a 1 for 8 renouncable rights issue. This had been forshadowed for some time, and means the Coles purchase is part funded by equity and not by debt. The halt is a nothing event, they just needed to stop the flow of paper to get the offer sorted, so what, they are a strong company with no suggestions of a cash squeeze.

John, could you please step aside, the unsubstantiated rumour express is coming through...

My local Shell service station has put up its prices a similar amount over the last six months.

Maybe Shell's going bust too!

Inflation in China has been running at over 10% for a couple of years, and wages and conditions have been improving at a similar cost. Raw material costs haven't been too stable either.

That may have just a small (50% I'd guess) impact on a lot of things we buy. Expect to see the cost of many things increase substantially over the coming years.

In the mid term there'll be no cheap Chinese crap. There'll probably still be crap, but it won't be cheap.

Cheers,

P

I have never said Wesfarmers are going broke. What I did say if you read my post carefully is that Wesfarmers are scraping for cash. That is why they have not sharpened their pencil.

What, I was saying is, that might be okay for them, but it is a warning to us to really know your prices and shop around even on the most elementary of items.

We do not have to play their game, if we do not want to. If we can find a n item for the same price as Bunnings maybe we should purchase elsewhere. it will not make much difference to Bunnings but may help to keep someone else afloat for another few days.

Wesfarmers is still in very good shape. The original Finance for the Coles Buyout was very short term. They needed a better Long Term Financing agreement.
I work for one of Wesfarmers subsidiaries, and I know we're very profitable. I also know that much of our profits will go into propping up Coles for the next few years....
Not holding my breath for this years bonus

Great, my missus is a manager at a Coles store and her budget has been getting squeezed for a few years now, this will only probably make it worse.

One can only hope that Wesfarmers are better than managing a company than what those wally's Coles/Myr were. Most jobs and shifts go towards teenagers and older women now as the budget wopn't allow more hours for the better experienced workers.

Still, it's in better shape than if Wesfarmers hadnt won the sale. US firm WallMart and a European company renouned for selling off companies nearty bought it last year, it could of been different if they had ownership