Wesfarmers to spin off Coles

WESFARMERS has announced plans to spin off supermarket giant Coles as a separate ASX-listed company.

WESFARMERS has announced plans to spin off Coles as a separate ASX-listed company.

The supermarket giant, which holds a 31 per cent share of Australia’s $100 billion grocery sector and generates 34 per cent of Wesfarmers’ profit, is expected to become a top 30 company with an estimated value of $19.4 billion, according to Credit Suisse analysis.

Wesfarmers will retain a maximum 20 per cent stake in the spin-off, which is subject to shareholder approval.

“Wesfarmers acquired Coles as part of Coles Group in 2007 and since then has successfully turned around the business and restored its position as a leading Australian retailer,” Wesfarmers managing director Rob Scott said in a statement on Friday.

“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately. It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity.

“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.”

Mr Scott said a demerger would allow Wesfarmers to focus on growth opportunities within its remaining businesses, which include hardware giant Bunnings, department stores Kmart and Target and stationery chain Officeworks.

“The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio,” he said. “The group expects to retain its current strong credit ratings and the dividend policy will remain unchanged.”

Wesfarmers chairman Michael Chaney said the demerger would extend the group’s long history of actively managing its portfolio. “Wesfarmers’ operating model has benefited our shareholders over the long term and will continue to provide the framework for future capital allocation decisions,” he said.

Metcash chief executive Steven Cain will replace John Durkan as managing director of Coles. Wesfarmers said Mr Durkan would step down later this year.

“Steven brings a wealth of experience in international and Australian retailing with organisations such as Asda, Kingfisher, Coles and Metcash,” Mr Scott said. “This, combined with his experience as a listed company CEO, positions Steven well to lead Coles post the demerger.”

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