Wesfarmers chairman Michael Chaney has sought to shore up confidence over a plan to spin off supermarket division Coles, reiterating a commitment to delivering returns in a letter to shareholders today.
With shareholder approval still required for the demerger to progress, Chaney echoed managing director Rob Scott’s view that a separated Coles would free up Wesfarmers capital for higher growth opportunities.
“The decision to pursue a demerger of Coles comes after a thorough review of our portfolio of businesses and is about repositioning Wesfarmers and Coles for the next decade,” Chaney said.
Pointing to Coles’ turnaround since it was acquired by Wesfarmers in 2007, Chaney explained that the supermarket chain is now well positioned to operate independently with a “more moderate” growth profile.
“A demerger would significantly reposition Wesfarmers capital towards higher growth opportunities in its remaining businesses, notably Bunnings Australia and New Zealand, Kmart and the Industrials division.
“It would also mean enhanced focus by Wesfarmers on existing businesses and new opportunities, and new investment would have a greater impact on returns on capital for Wesfarmers’ shareholders,” Chaney said.
Announcements on Coles’ proposed capital structure, dividend policy, separation and governance arrangements are expected in “due course”, with a targeted implementation date (if approved) in the 2019 financial year.
A spin-off would include Coles national network of 806 stores, Coles Online, 894 liquor stores, Coles Express’ 712 fuel and convenience outlets and 88 hotels – around 34 per cent of Wesfarmers divisional earnings.
Coles has been valued at $18 billion by Citi analysts, which would place the separate entity well within the top 30 companies on the ASX.
Wesfarmers’ has proposed to maintain a minority stake up to 20 per cent in a demerged Coles and is currently taking steps to formulate a board for the business.
The conglomerate will maintain its ownership of loyalty program Flybys though and will pursue strategic synergies with a demerged Coles and its other retail brands, Kmart, Target and Bunnings.