Wesfarmers seeks growth prospects, cutting Coles loose

Posted by Aimee Chanthadavong on 8th October 2018

WESFARMERS on Friday entered into a trading halt as it provides details on its proposed $20 billion demerger of Coles, on which shareholders will vote November 15.

If the demerger proceeds, which is subject to regulatory approval, Wesfarmers plans to retain a 15 per cent share in Coles and a 50 per cent interest in the Flybuys joint venture with Coles.

Shareholders will retain their existing Wesfarmers shares. They may also be entitled to receive one Coles share for every Wesfarmers share they own at the demerger record date.

Wesfarmers managing director Rob Scott said the demerger would reposition the group’s portfolio to target a “higher capital weighting towards businesses with strong future earnings growth prospects”.

Meanwhile, the company believes Coles’ separation from Wesfarmers will create a “new top-30 Australian-listed company” in the groceries market.

Coles managing director Steven Cain said Coles is well positioned for success over the next decade.

“We will continue to focus on ensuring that Coles remains a trusted brand for Australians and maintains its market leading position by continuously improving the customer experience,” he said.

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In line with this, Coles has entered into an agreement with logistic-solutions provider Witron to develop two new automated distribution centres for Coles over five years in an effort to modernise its supply chain.

Brian Walker, Retail Doctor Group chief executive, told AFN that the proposed demerger will result in a win-win for Wesfarmers and Coles.

“Wesfarmers is in the business of driving shareholder returns and there was a time that Coles had one of the highest EBDITA profits in the western world but those times have change dramatically,” he said.

“The supermarket sector has been under heavy pressure and its increasing because of the likes of the growth of Aldi, online fulfilment models, and Amazon coming into the country.

“We have seen return on operating funds reducing and Wesfarmers effectively believe Coles is not meeting its criteria of ‘strong future earnings prospects’.

“But Coles is well placed to defend its position. Coles is a steady ship, it’s got a bit of upbeat competition and it’s ticking along.”

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