BUSINESS COLES GOES IT ALONE
COLES will join the Australian stock market as an independent company next week after Wesfarmers investors gave their support to the nation’s biggest ever demerger.
Shareholders yesterday waved through the $ 20 billion spin off of the grocery chain, which will join the bourse in its own right next Wednesday.
In a vote that followed Wesfarmers’ annual meeting yesterday, about 99 per cent of shareholders – who will receive one Coles share for each Wesfarmers share they own – backed the plan.
Wesfarmers, which owns Bunnings, Kmart, Target and Officeworks, is keeping a 15 per cent stake in the grocer.
Speaking at the annual meeting, Wesfarmers chair Michael Chaney said the group was in no hurry to make an acquisition after Coles was spun off.
Mr Chaney challenged suggestions there would be an “earnings hole” after the demerger, saying he was “bemused” by the concept.
“There is, of course, no ‘ earnings hole’. The demerger simply splits what was one group profit into separate profits, for a smaller Wesfarmers and for Coles,” he said.
“And the financial strength of Wesfarmers doesn’t mean that we feel any urgency to make new acquisitions.”
Mr Chaney also sought to allay fears shareholders would receive less in dividends.
The combined dividends of spun- off Coles and Wesfarmers should be the same, he said.
“Let me assure you your fears are unfounded,” he told one shareholder who feared a 30 per cent slump in annual dividends.
“You will have two dividend streams instead of one. Our expectation is there will be two and that add up to what the two would have been.”
Mr Chaney acknowledged that “over time” that might change as the companies evolved, but “the actual splitting of the two does not result in a reduction of your income”, he said.
A former chair of National Australia Bank, Mr Chaney also rued what he said was an obsession with short- term profit growth at Australia’s listed companies.
“This unreasonable focus was undoubtedly a factor in giving rise to the sorts of unacceptable behaviours we have read about in reports on the banking royal commission,” he said.
“In endeavouring to satisfy market and press demands for short- term profit growth – to achieve what is called ‘ consensus forecasts’ – management sought to motivate employees through incentive schemes.
“These led to some employees and agents bending the rules.”
Mr Chaney said it was the role of boards to protect executives as they made long- term decisions amid “constant market demands to achieve shortterm profit growth”.