Massive Woolworths shake up to see offloading of liquor and gaming businesses
Woolworths’ shareholders should be raising a toast after the supermarket giant unveiled plans for a major restructure. Here’s what the retailer is planning to ditch.
Business
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Woolworths chief executive Brad Banducci says reputational concerns about operating pokie machines is not the key driver behind a deal to combine and spin off its drinks and pubs units.
The boss of the retail giant says the move to merge and exit its Dan Murphy’s and BWS drinks businesses and pubs operations will allow the new group and Woolworths to sharpen their focus on customers in a rapidly changing retail world.
“This decision was made so these two business can achieve their full potential,” Mr Banducci said.
“It (reputational concerns) is not the primary driver of it at all … it is really about a new organisational structure for a new era of retailing that requires agility, simplicity and partnership.”
Shares in Woolworths jumped by close to 3 per cent on Wednesday after it unveiled a plan to merge its Endeavour Drinks and ALH Group businesses before spinning off or selling the combined group.
Endeavour houses 227 Dan Murphy’s stores and more than 1100 BWS outlets, of which about 770 are attached to a Woolworths supermarket. ALH operates 327 pubs and is the nation’s biggest poker machine operator with 12,000 machines.
The merger will create a drink and pubs giant with $10 billion in sales and $1 billion in earnings annually.
Woolworths has a 75 per cent stake in ALH with the remainder owned by pubs baron Bruce Mathieson.
The supermarket giant plans to list the new group on the stock exchange, giving existing Woolworths shareholders stock in the company and keeping a stake of up to 15 per cent.
Mr Mathison is set to emerge with a 14.6 per cent holding in the new company to be called Endeavour Group.
The deal is expected to be completed next year.
Woolworths has come under sustained pressure from anti-gambling activists and at least one of its key shareholders to get out of the pokies business.
ALH is also facing fines and disciplinary action in New South Wales amid allegations pokies players were given free drinks to keep them gambling longer.
Mr Banducci said Woolworths would maintain a close relationship with the group, including working together on home delivery options, promotions, digital analytics and their rewards programs.
But separating the businesses would let each one focus on their core business when customers were demanding greater convenience and online was reshaping every aspect of the retail world, he said.
“It’s a race to meet our customer’s ever changing expectations and we need to be more agile and have simpler processes to do so,” he said.
Mr Banducci said there was no plan to get rid of struggling discount department store Big W.
Analysts gave the Endeavour restructure a lukewarm reception with CLSA saying the deal was “complex and the rationale not compelling”.
“That Woolworths wishes to divest of liquor and hotels could suggest that these two businesses offer slimmer growth prospects than supermarkets,” the investment bank said in a note to clients.
“The main advantage we see is that it partly, but not entirely, relieves Woolworths of any reputational damage from being a major pokie machine operator.”
Ratings agency Standard & Poor’s said the deal would reduce Woolworth’s “scale and diversity” but would not affect its credit rating.
Both supermarket giants, Woolworths and Coles, have moved to simplify their businesses as they confront the rise of online shopping in influx of foreign competitors such and Aldi, Costco, Kaufland and Amazon.
Woolworths sold its petrol business last year for $1.7 billion.
It also and called time on its loss-making Masters hardware experiment in 2016.
Perth-based conglomerate Wesfarmers spun Coles out into a separate company last year.
Shares in Woolworths gained 2.7 per cent on Wednesday to close at $33.82.
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