Woolworths to divest drinks and hospitality businesses

Woolworths has announced plans to merge its drinks and hospitality businesses into a single entity which will be divested from the group in 2020 to allow for a greater focus on its core food business.

Endeavour Drinks and ALH Group will unite under the title Endeavour Group, creating Australia’s largest integrated drinks and hospitality business, with sales of approximately $10 billion. The Group will comprise over 1,500 BWS and Dan Murphy’s retail drinks outlets and 327 ALH hotels.

The merger is expected to be completed in the second half of this calendar year, with Woolworths to hold 84.5 per cent of the business and Bruce Mathieson Group (BMG), a partner in ALH joint venture, to own 14.6 per cent.

Woolworths Group is then planning a separation of the business through a demerger “or other value-accretive alternative”. If demerged, Woolworths is expected to retain a minority stake.

The separation will result in a simplified organisational structure within Woolworths Group and allow more focus on growing the supermarket end, thus creating “two market-leading customer focused businesses”.

“Over the past three years we have progressively moved from a period of fixing the basics as part of our turnaround to investing for the future as part of our transformation,” Woolworths Group CEO Brad Banducci said in a statement to the ASX on Wednesday.

“As we look to build customer differentiation in all of our businesses, and prepare for an agile and digitally-enabled future, we have decided to simplify Woolworths Group through a combination and subsequent separation of Endeavour Group.”

Woolworths Group CFO David Marr will oversee the merger and separation of Endeavour Group, taking up the new role of chief operating officer at Woolworths Group. Finance director of Australian Food Stephen Harrison will take over the CFO role from August 1.

ALH already owns 86 Dan Murphy’s and 512 BWS store retail drinks outlets, and comprises around 35 per cent of the Group’s retail drinks sales.

The merger will include Endeavour Drinks’ own and exclusive brands business, Pinnacle Drinks, wine auction and retail business Langton’s, wine subscription business Cellarmasters and an 8.7% stake in ALE Property Group.

Woolworths Group chairman Gordon Cairns said that the decision is in the best interests of shareholders.

“The Board believes that a merger of Endeavour Drinks and ALH followed by a separation, is in shareholders’ best interests and will benefit customers and team members of both groups,” Cairns said.

“The decision has been taken after consideration of the future prospects of both businesses and how they can be best realised. It reflects the Board’s focus on maximising long-term shareholder value.”

Retail expert Associate Professor Gary Mortimer said that off loading non-core valuable assets can help develop “much more agile and dynamic businesses”.

“It’s no secret that certain retail sectors have been under increasing pressure to perform, faced with increasing operational costs and downward price pressure from an ever increasing price conscious consumer,” Mortimer told Inside FMCG.

“Sales for both [Woolworths and Coles] have been challenging…Demerging these assets immediately puts money back in the bank, allowing such business to invest in stores, technology and supply chains.”

The restructure is subject to shareholder approval, which is expected to be sought at Woolworths Group’s 2019 AGM.

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