Last drinks for Woolies

WOOLWORTHS will seek shareholder approval next month for a demerger of its drinks and hotels arm Endeavour Group, creating a new top 50 company on the ASX with a steady earnings stream and the promise of an attractive yield.

Woolworths said that following the demerger it will consider capital management options that could see it return between $1.6bn and $2bn to Woolworths shareholders.

The supermarket chain announced on Monday it had concluded a demerger was the most appropriate route for its near two-year-old plan to separate Endeavour.

The corporate split will end a 60-year history of Woolworths selling liquor and brings to an end 16 years of a hotels joint venture with the Mathieson family, which saw the supermarket giant become the biggest hotels business in Australia.

Details of the planned demerger of Endeavour Group, which could be valued as high as $15bn when its shares are slated to list on the market on July 1, were released by Woolworths on Monday.

A 231-page demerger booklet sets out the future of both entities if the split is approved by shareholders.

The demerger was first unveiled in mid-2019 but the emergence of the COVID-19 pandemic derailed the process. However with the equities market now booming, consumers brimming with confidence and household wealth on the rise, thanks especially to a buoyant housing market, it could prove perfect timing for the spin-off.

Endeavour Group, which owns the flagship Dan Murphy’s liquor chain, BWS and a hotels joint venture with the Mathieson family, will come to the market with sales of more than $10bn and at a time when investors are hungry for yield.

It is promising a healthy dividend policy of a payout ratio of 70 per cent to 75 per cent of net profit.

The proposed demerger is the final step in a process that involved the combination of Woolworths Group’s drinks and hospitality businesses to form Endeavour Group through a restructure of Endeavour Drinks and subsequent merger with ALH Group.

If approved by shareholders at a meeting on June 18 and implemented the demerger will create two independent and leading ASX-listed companies, with Endeavour Group to be a top 50 ASX company.

Under the demerger plan, Woolworths shareholders will retain all their existing Woolworths shares and eligible shareholders will receive one new Endeavour Group share for every Woolworths Group share held at the demerger record date.

Woolworths and its longterm joint venture partner, Bruce Mathieson Group, will each hold a 14.6 per cent interest in Endeavour Group at the time of the demerger.