Coronavirus halts Woolies’ Endeavour spin-off

The coronavirus pandemic has killed off the $10bn demerger of Woolworths’ hotels and liquor arm Endeavour for this year.

Woolworths CEO Brad Banducci Picture: AAP

The coronavirus pandemic has killed off the $10bn demerger of Woolworths’ hotels and liquor arm Endeavour Group for this year and cast a pall over any further sharemarket debuts until 2021, as global economic uncertainty drains investor enthusiasm for new issues.

The hoped demerger of ALH hotels and Woolworths’ liquor chains Dan Murphy’s and BWS was to be a cornerstone of chief executive Brad Banducci’s strategy to streamline the retailer and focus attention on its flagship Australian supermarkets. After winning shareholder support in December for the formation of the new group, it was slated for a possible trade sale or float in the next few months.

But those plans were placed on ice on Tuesday as Woolworths gave into the wild ride on sharemarkets that has resulted in investors fleeing the market, equities crashing and, in a direct threat to Endeavour’s earnings prospects, the nation’s pubs, clubs and hotels forced to shut down to limit the spread of the virus.

Woolworths said the panic buying at its supermarkets in Australia and New Zealand had helped boost sales, but given the huge uncertainty swamping the economy the retailer could not provide earnings guidance for the 2020 fiscal year.

The demerger and float of Endeavour would have been one of the biggest listings for 2020, with the drinks and hotels business having combined sales of about $10bn and earnings of $1bn. Woolworths owns 85.4 per cent of Endeavour, with the balance owned by the Mathieson clan. In a future demerger, Woolworths was to hold a minority stake of 15 per cent.

But all those plans, unveiled by Mr Banducci in July, have now smashed up against the reality of COVID-19 and the shutdown of hospitality venues.

ALH, the hotels joint venture owned by Woolworths and the Mathieson family, confirmed on Tuesday that it had stood down 8000 workers as its venues were closed indefinitely, with some of those employees able to be redeployed to Woolworths.

While Dan Murphy’s and BWS bottle shops remain open, for now, the sidelining of such a large segment of the Endeavour empire has made any likelihood of producing a viable prospectus or delivering a successful demerger almost impossible.

“Given the impact of the government directive to close hotels for an extended period and current financial market conditions, the Woolworths board has made the decision to defer the separation of Endeavour from Woolworths until calendar 2021, with the specific date subject to ongoing review,” Woolworths said on Tuesday.

Mr Banducci, when asked if the demerger of Endeavour still made sense and that perhaps Woolworths would benefit from maintaining ownership of its pubs and hotels arm, and hence a diversified earnings base in volatile times, he told The Australian the plan was to still consider a demerger proposal. “What we are very focused on right now as you would understand is making sure that the 8000 team members in the venue or pub part of ALH are given opportunities to work in other parts of the group,” he said.

Mr Banducci confirmed sales at its supermarkets were strong.

“In recent weeks, sales growth across the group’s retail businesses has been strong, with the ­recent exception of hotels, reflecting unprecedented demand for a range of products as customers have consumed more at home and stocked their pantries,” he said.

Last week Mr Banducci noted demand was so strong it was akin to Woolworths feeding 50 million people a week, rather than 25 million, while grocery suppliers were witnessing sales volumes that were outstripping even the busiest days during Christmas.