Coles’ loss on ALG up to $36.4 million

NATIONAL retail giant Coles Myer has revealed it may have paid three times more than “fair value” in its takeover of WA-linked Australian Liquor Group – amounting to a potential loss of up to $36.4 million.

With the one year anniversary of Coles first purchase of ALG shares having passed unnoticed last week, the retail group has been forging ahead with its case against five former ALG directors in the Supreme Court of Victoria.

The past fortnight’s legal activity has centred around the scale of the losses and damages claimed by Coles in the action being brought by its subsidiaries Liquorland (Australia) Pty Ltd and ALG.

Coles’ case alleges that the financial condition of ALG was worse than information provided to the market and that the directors knew this, at least by March 2001, the month before Liquorland bought 18 per cent of ALG from Quadrant Capital Fund No 2, acquiring eight million shares at $1.20 each.

By July 18 last year the Coles group had acquired all of ALG for the same price per share at a total cost of $53.3 million.

In a particulars of loss and damage filed on April 12, Coles has revealed that it has the “fair value” of ALG at the time of its takeover bid to have been 38 cents per share, providing a total value of about $17 million.

However, the particulars also show that Liquorland would have been prepared to pay 70 cents per share or $31 million had it been able to vary its offer at the time to take account for the alleged “contravention”.

The Coles document, prepared by law firm Freehills, shows ALG’s former directors and their associates made almost $10 million from the takeover of the liquor company which had been listed less than a year before Liquorland swooped.

Among the directors holdings were 44,713 shares held by WA accountant Michael Anghie, 7.5 million shares by Victorian retailer Philip Murphy and one of his companies, 353,360 shares by national liquor association heavyweight Mal Higgs and 20,000 held by another director Michael Pelly.

A fifth director, AFL high flier Ross Oakley, was not listed as a shareholder but is included in the action.

ALG was established during late 2000 and early 2001, driven largely by a group of liquor retailers in WA which joined forces with the Philip Murphy chain in Victoria.

The group went on a cash and shares buying spree, picking up around 20 stores in WA and a similar number across the eastern states in a concerted push to create a third force in liquor to rival the big supermarket operators which had pushed into the sector.

Even before Coles purchase of ALG and Woolworths acquisition last year of WA-based Liberty Liquors from Patrick Stephenson for a reputed $60 million, the two national retail giants already dominated packaged liquor sales throughout the country.

The ALG acquisition came at a time when Coles feared its major rival was catching its lead in this field.

In March 2001, Coles Myer’s Liquorland and Vintage Cellars brands represented 76 of WA’s 459 liquor store licences.

Woolworths had just 31 before adding 14 Liberty Liquors stores to its WA business.

ALG had sales of around $2 million a week, based on actual sales during January to April 2001.

But Coles claims in its particulars that these sales were well below budget and that ALG’s former chief financial officer David McLaughlan provided a paper to the board in December 2000 “in which he concluded that the company’s management of finance and administration had been non-existent and that the accounts which had been presented to the board purportedly representing the first quarter’s results were false and misleading.”

Mr Higgs’ and Mr Anghie’s lawyer Andrew Green, a partner of Norton Gledhill, said orders were made on Friday requiring Liquorland to make further discovery and requiring both plaintiffs to give more particulars of their loss and damages.

The Coles’ subsidiaries apparently have until May 3 to show how they have calculated the amount of losses its claims, something that many in the liquor industry will be interested to see.

A Coles spokesman said the company did not wish to comment on the matter because it was before the courts.