Woolies plans to give up the booze

WOOLWORTHS chief executive Brad Banducci says reputational concerns around operating pokie machines are not the key driver behind a deal to combine and spin off its drinks and pubs units.

The boss of the retail giant says the move to merge and exit its Dan Murphy’s and BWS drinks businesses and pubs operations will allow the new group and Woolworths to sharpen their focus on customers in a rapidly changing retail world.

“This decision was made so these two business can achieve their full potential,” Mr Banducci said.

“It [reputational concerns] is not the primary driver of it at all. It is really about a new organisational structure for a new era of retailing that requires agility, simplicity and partnership.”

Shares in Woolworths jumped by close to 3 per cent yesterday after it unveiled a plan to merge its Endeavour Drinks and ALH Group businesses before spinning off or selling the combined group.

Endeavour houses 227 Dan Murphy’s stores and more than 1100 BWS outlets, of which around 770 are attached to a Woolworths supermarket.

ALH operates 327 pubs and is the nation’s biggest poker machine operator with 12,000 machines.

The merger will create a drinks and pubs giant throwing off $10 billion in sales and $1 billion in earnings annually.

Woolworths has a 75 per cent stake in ALH with the remainder owned by pubs baron Bruce Mathieson. The supermarket giant plans to list the new group on the stock exchange.

This would give existing Woolworths shareholders stock in the company and see them keep a stake of up to 15 per cent.

Mr Mathieson is set to emerge with a 14.6 per cent holding in the new company to be called Endeavour Group. The deal is expected to be completed next year.

Woolworths has come under sustained pressure from anti-gambling activists and at least one of its major shareholders to get out of the pokies business.

ALH is also facing fines and disciplinary action in New South Wales amid allegations pokies players were provided free drinks to keep them gambling longer. Mr Banducci said Woolworths would maintain a close relationship with the new group, including working together on home delivery options, promotions, digital analytics and their rewards programs.

Analysts gave the Endeavour restructure a lukewarm reception with CLSA saying the deal was “complex and the rationale not compelling”.

“That Woolworths wishes to divest of liquor and hotels could suggest that these two businesses offer slimmer growth prospects than supermarkets,” the investment bank said in a note to clients.

“The main advantage we see is that it partly, but not entirely, relieves Woolworths of any reputational damage from being a major pokie machine operator.”