Coles to go it alone
Townsville SUPERMARKET giant Coles will be spun off and become one of the 30 biggest companies on the Australian stock market in what owner Wesfarmers has called a “once in a decade” move.
Wesfarmers plans to retain as much as 20 per cent of the new Coles business, which analysts suggest would be worth about $ 18 billion, and hand the remainder over to shareholders.
Investors liked the news, shooting Wesfarmers shares 6.3 per cent, or $ 2.60, higher to $ 43.80.
The Perth- based conglomerate will also hang on to the Kmart and Officeworks businesses it acquired when it bought Coles in 2007, and believes the separation will let it focus on its other divisions, including Bunnings hardware stores, while providing scope for future acquisitions.
Coles accounts for 60 per cent of Wesfarmers’ employed capital, but only 34 per cent of earnings.
“It’s a once in a decade repositioning of the portfolio,” managing director Rob Scott said. Mr Scott said the board had discussed offloading the 806 Coles supermarkets and other associated stores in previous years.
He revived the proposal as part of his pitch to succeed Richard Goyder last year.
“There is an opportunity for us to deliver a superior return,” Mr Scott said. “That doesn’t mean that returns from Coles won’t be good returns; they just will be more moderate levels of return.” Coles’ food sales growth has lagged that of Woolworths in recent years as its arch rival slashed prices, but Mr Scott said Coles remained an attractive investment.
“It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity,” Mr Scott said.
Citi retail analyst Bryan Raymond said the move was positive both for Wesfarmers shareholders wider supermarket sector.
“Shareholders can now gain exposure to a Wesfarmers business primarily driven by Bunnings in Australia and New Zealand,” Mr Raymond said.
Metcash supermarkets executive Steven Cain will and the chief replace John Durkan as managing director of Coles, returning in September to a business he briefly led prior to its 2007 purchase by Wesfarmers.
Wesfarmers is mulling a possible exit from Bunnings in the UK and Ireland after its venture into overseas markets led to $ 1.023 billion of impairments and an 86.6 per cent drop in first- half profit. All shareholders will have the ability to resell their shares after the company begins trading on the ASX.
The spin- off, or demerger, of the supermarket business from Wesfarmers, is expected to be completed next financial year. The deal requires shareholder approval.