Why Coles (ASX:COL) Shares Dropped on Its A$4bn Move Into Pet Care

Coles Group (ASX:COL) had a bruising day on Wednesday. The stock sank as much as 7.7% during the session, hitting a low of A$22.48, before recovering to close down about 4% at A$23.35, from a previous close of A$24.37. The trigger? Coles confirmed it is in talks to buy Greencross, a big pet care company, from private equity firm TPG.

Here’s the odd part. Companies usually rise when they announce growth plans. But COL fell. When that happens, it normally means investors are worried about the price and how the deal gets paid for, not the idea itself. So are they right to worry? Let’s break it down in plain terms.

What Is Coles Actually Buying?

Greencross is big. It owns the Petbarn store chain and about 200 vet clinics, and it made more than A$2 billion in sales in FY25. Buying it would push Coles well beyond groceries and into pet care, one of the steadier areas of spending, since people keep paying for pet food and vet bills even when money is tight.

There’s also a rivalry at play. Woolworths is already in pet care through its stake in Petstock. Buying Greencross would let COL catch up fast and spread its earnings beyond supermarkets.

Here’s the twist that makes this deal so telling: COL already tried pet care on its own and failed. Just months ago, in March 2026, it shut down Swaggle, its own online pet business, after only two years, saying customer demand had shifted. Having failed to build in-house, Coles now looks ready to pay a hefty price to buy its way in instead.

Why Did Investors Get Nervous?

This is the real reason for the drop. TPG bought Greencross for just A$675 million back in 2019. Paying around A$4 billion now is nearly six times that, and about twice what Greencross earns in sales each year. That has investors asking a simple question: is Coles overpaying?

The bigger worry is how Coles funds it. A deal this size often needs new money. If Coles raises it by issuing new shares, every existing shareholder ends up owning a smaller slice of the company. That’s called dilution, and it’s usually enough to push a stock down on its own.

To be fair, Coles pushed back on the panic. It says it has a strong balance sheet and room to borrow, and it will only proceed if the deal is “strategically compelling” and delivers attractive shareholder returns. Nothing is locked in.

Is Coles a Buy After the Drop? 

In our view, this drop is about deal nerves and price, not a broken business. COL is still a steady, dividend-paying supermarket, and the shares are cheaper than they were a week ago.

If you own Coles for the income, the key thing to watch is how any deal gets paid for. Borrowing to fund it would be easy to digest. A big share raise would be the real risk to your holding. It’s also worth noting Coles had a second knock on the same day: the ACCC blocked its acquisition of a new supermarket leasehold site in Kalgoorlie, Western Australia, a reminder that regulators watch the big supermarkets closely.

The bottom line: nothing is signed, and COL said plainly there is “no certainty that a transaction will proceed.” Watch three things from here: whether the deal is confirmed, the final price, and how COL pays for it.