Woolies split has investor approval

WOOLWORTHS shareholders have voted overwhelmingly in favour of a historic demerger and split of the retail giant to create a new ASX top 50 company focused on liquor and hotels.

The Endeavour Group separation also paves the way for a possible $2bn capital return to Woolworths investors.

At a meeting in Sydney on Friday, Woolworths shareholders overwhelmingly swung behind the demerger, with chairman Gordon Cairns making a strong case for the split ahead of the vote.

In a statement later lodged with the ASX revealing the voting results, Woolworths said 99.85 per cent of votes were cast for the demerger of Endeavour Group.

According to the listing timetable triggered by the vote, Woolworths shares will trade for the last time cum-entitlements to the demerger on June 23, and trade for the first time on the ASX excluding these entitlements on June 24. Endeavour Group will commence trading on a deferred settlement basis the same day.

The demerger will be officially implemented on July 1, with Woolworths to pursue a greater focus on its food and groceries business while Endeavour Group will become a top 50 ASX company with national retailing assets such as liquor chains Dan Murphy’s, Langtons and BWS as well as the sizeable pokies, pubs and hotels business that was a joint venture between Woolworths and the Mathieson family.

It’s thought Endeavour Group’s large portfolio of gaming machines across the country could pose a challenge to some fund managers and investors who stick to strict ESG (environmental, social and governance) policies.

Under the demerger proposal, Woolworths shareholders will get one Endeavour share for every Woolworths share held. Woolworths and Bruce Mathieson Group (BMG), which is a joint venture partner in the hotels part of the business, would each hold a 14.6 per cent interest in Endeavour after the demerger.

Some analysts have concerns over the debt Endeavour will be saddled with when it emerges in July as the newest top 50 company in the ASX, although it has strong cashflows and liquor has been a star performer even during the Covid-19 pandemic.

It is estimated Woolworths will tip $5bn of debt into Endeavour, which could limit its growth potential because Endeavour also needs capital expenditure to pour into updating its 12,000 poker machines and its network of pubs and hotels. The $5bn of debt is as much as 3.8 times earnings.

This could limit the capex available to invest in its businesses to about $350m so as to maintain its credit ratings.

Endeavour, will come to the market with sales of more than $11bn, promising a healthy dividend payout ratio of 70 to 75 per cent of net profit.

Woolworths chairman Mr Cairns called on shareholders in the retailer to vote in favour of the multi-billion dollar, saying it would be a positive move for both businesses.

He also dangled the hope that after the demerger was struck Woolworths could return up to $2bn to investors.

“We believe shareholder value will be enhanced through a greater focus on each business’s core,” he said.