Wesfarmers cashed up after Coles shares selldown

Wesfarmers will fill its coffers with roughly $1.2bn in fresh cash after it sold another slice of its stake in supermarket group Coles.

Wesfarmers is selling more of its Coles stake Picture: Cody Fox

Wesfarmers will fill its coffers with roughly $1.2bn in fresh cash after it decided to sell another slice of its stake in supermarket group Coles, giving it more balance sheet flexibility at a time of global uncertainty and upheaval caused by the coronavirus ­pandemic.

The Perth-based conglomerate announced on Monday night that it had engaged two lead managers to sell a 5.2 per cent stake in Coles. It was only last month that Wesfarmers sold its first tranche of Coles shares, at that time selling at record highs for Coles to see it cash out $1.1bn.

Coles is trading near an all-time high and closed up 6.9 per cent on Monday at $16.82.

Now Wesfarmers will have more than $2bn in cash ready to deploy once the fresh slice of Coles shares are sold off, just at a time when global sharemarkets are crashing to generate good buying opportunities.

As a result of the Wesfarmers’ interest falling below 10 per cent, the Relationship Deed agreed with Coles at the time of the demerger in late 2018 will terminate and Wesfarmers will no longer have the right to nominate a director to the Coles board. As part of the transaction, Wesfarmers has also agreed to retain its remaining shares in Coles for at least 60 days from completion of the sale, subject to customary exceptions.

Wesfarmers managing director Rob Scott said the significant and unprecedented events of the past few weeks had highlighted the importance of balance sheet flexibility to support the group in a range of economic circumstances.

“We have been pleased with the performance of Coles since the demerger and the very important role that Coles is providing, and will continue to provide, to Australian households during the COVID-19 crisis,” Mr Scott said. “This divestment crystallises an attractive return for shareholders since the demerger and further enhances Wesfarmers’ strong balance sheet position.”

Wesfarmers and Coles will continue its Flybuys joint venture, with both groups retaining a 50 per cent interest in the business, allowing continued strategic collaboration in relation to mutually beneficial growth ­initiatives.