Earlier this week Wesfarmers Ltd (ASX: WES) announced that it was trimming its stake in supermarket giant Coles Group Ltd (ASX: COL) further.
The conglomerate revealed that it had agreed to sell down its Coles stake from 10.1% to 4.9% for a total consideration of $1,060 million.
This was the second time in as many months that Wesfarmers has sold Coles shares. In the middle of February Wesfarmers offloaded a 4.9% stake in the supermarket operator for $1.1 billion.
Wesfarmers managing director, Rob Scott, commented: "This divestment crystallises an attractive return for shareholders since demerger and further enhances Wesfarmers' strong balance sheet position."
What now for Wesfarmers?
The question on the lips of many investors now, is what will Wesfarmers do with the funds?
In my opinion, it doesn't appear to be a coincidence that Wesfarmers has bolstered its coffers at a time when asset valuations have been crushed.
This view is shared by equity analysts at Macquarie Group Ltd (ASX: MQG), who have been busy putting together a list of companies that Wesfarmers could have its eye on.
According to the AFR, Macquarie has named 38 companies as potential acquisition candidates for Wesfarmers.
These potential targets include:
- Building products company Adelaide Brighton Ltd (ASX: ABC).
- Auto retailer AP Eagers Ltd (ASX: APE).
- Health supplements company Blackmores Limited (ASX: BKL).
- Poultry producer Inghams Group Ltd (ASX: ING).
- Electronics retailer JB Hi-Fi Limited (ASX: JBH).
- Miner and mining services company Mineral Resources Limited (ASX: MIN).
- Fuel retailer Viva Energy Group Ltd (ASX: VEA).
The broker notes that all these companies have fallen heavily from their three-year highs, have historically profitable operations, an enterprise value below $5 billion, and a structural return on equity greater than 12%.
Macquarie explained: "This provides us with a list of proven business models, that are the right size and valuations that are currently attractive. Nevertheless, we note that many of the companies on this list are unlikely to meet WES's strategic objectives."
Two other companies that came close, but were ultimately ruled out were Kathmandu Holdings Ltd (ASX: KMD) and Super Retail Group Ltd (ASX: SUL).
"We also consider retail names such as Kathmandu or Super Retail Group as both businesses have sufficient scale to be relevant to Wesfarmers, have recently sold off and have supply chain synergies with Kmart and Target, but we believe this is less likely at this point, given Wesfarmers already has significant retail exposure," the broker concluded.
Foolish Takeaway.
It looks set to be a busy few months for Rob Scott and his team.
I wouldn't be surprised if one of the companies listed above was acquired by Wesfarmers. But predicting which one, is easier said than done.
For now, I think the prudent thing to do is wait and see how the situation develops over the coming months, rather than betting on a potential takeover approach.
