Wesfarmers To Spin Off Grocery Giant Coles
Wesfarmers plans to spin off supermarket giant Coles and create a separately listed business that would rank among the 30 biggest on the Australian stock market.
The Perth-based conglomerate plans to retain a 20 per cent stake in the new business, and managing director Rob Scott said the move would allow it to focus on its other businesses and give it the capacity to make future acquisitions.
Coles accounts for 34 per cent of Wesfarmers' earnings but 60 per cent of its employed capital, "A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions," Mr Scott said on Friday.
"The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio."
Metcash supermarkets chief executive Steven Cain will replace John Durkan as managing director of Coles, with the demerger and listing set for completion in the 2019 financial year, subject to shareholder and regulator approval.
Coles has been outpaced by Woolworths in crucial comparable food sales growth as its rival supermarket giant slashed prices over the past three years, but Mr Scott said Coles still represented 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.
"Coles will be well positioned to continue to deliver long-term earnings growth, with an earnings profile that is expected to be resilient through economic cycles."
The spin off would include 806 supermarkets, Coles Online, 894 Liquorland, Vintage Cellars and First Choice Liquor stores, 712 Coles Express fuel and convenience stores, a general insurance and credit cards business, and 88 Spirit Hotels.
Wesfarmers would be left with its Bunnings hardware stores, Target, Kmart, Officeworks and an industrials portfolio.
It 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.