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Coles Myer's Officeworks subsidiary has agreed to pay up to an estimated
$50 million for Viking Office Products in a deal the retailer expects to
contribute positively to earnings in its first year.
The proposed purchase will add another $150 million in sales to Officeworks
and broadens the business' distribution capacity beyond its current base of 65
stores.
Viking, owned by Home Depot of the US, has about 128,000 business customers
it services directly via catalogues and online. Home Depot is quitting Australia
to focus on opportunities in Europe.
``The strategic rationale is that it gives us critical mass in the direct
channel," Officeworks' managing director, Peter Scott, said. ``We see Viking as
the market leader and believe that their customers are complementary to our own
customer base."
Viking will augment Officeworks' planned organic expansion of 45 stores in
the next four years.
Analysts estimated Coles Myer would pay between $40 million and $50 million
for Viking after beating rival bidders rumoured to include New Zealand's
Warehouse Group, Australia Post, and Boise. Corporate Express, at one stage
considered the frontrunner for Viking, suffered a 32c fall in its shares to
$4.53.
Coles Myer expects to complete the acquisition by the end of the year and
said that Viking would add to earnings per share in its first full 12 months
with Officeworks.
Analysts said the small purchase would not make a great difference to the
bottomline but was nonetheless a sound expansionary move.
``It's a good add-on," said UBS Warburg analyst Michael Peet. ``Viking
provides another channel to market for Officeworks."
Coles Myer is expected to extract synergies from the purchase, possibly in
the order of $1 million to $2 million before tax, by consolidating head office,
marketing and distribution and by making use of the combined group's greater
purchasing power.
While investors approved of the purchase, some said they'd prefer Coles Myer
to fix the problems with its Myer Grace Bros and Target chains before pursuing
any big deals.
``There are two schools of thought," Merrill Lynch analyst James Casey said.
``One is that Coles should focus on fixing the non-food businesses before
making acquisitions.
``On the other hand, the company shouldn't ignore opportunities to bolster
Officeworks, which has performed well. We're probably in the latter camp," Mr
Casey said.
Shares in Coles Myer yesterday closed unchanged at $6.57.
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