Eyes turn to potential shopping list for independent Endeavour

Endeavour’s operations include Dan Murphy’s and BWS.

Woolworths has completed the merger of the ALH pubs business and its Endeavour Drinks liquor division, and a spin-off is now expected to happen next year.

But with the demerger becoming increasingly closer to a reality, some are already anticipating what could be on Endeavour’s shopping list once it starts trading as an independent company.

One line of thought is that Endeavour is likely to buy its landlord, the $855m listed ALE Group.

ALE owns about 86 freehold pubs across Australia that have been leased to pub operator ALH.

The lease terms come up for renewal in 2028, and before that time some anticipate that Endeavour will want to spend money on the properties.

For this reason, they believe it makes sense to acquire the pubs so that its spending to add the improvements is not for nothing.

Following the merger of ALH and Endeavour Drinks, ALH is now wholly owned by Endeavour Group, and Endeavour is 85.4 per cent-owned by Woolworths Group, with leading hotelier Bruce Mathieson Group owning the remaining 14.6 per cent.

Woolworths describes ALH as Australia’s leading pub operator and Endeavour as its leading liquor retailer, with operations including Dan Murphy’s and BWS.

ALE Group, which is now run by Guy Farands, has always been known as a highly profitable business, with the group posting a $20m net profit for the 2020 financial year despite the impacts from the coronavirus shutdowns.

Going into 2021, Endeavour is also on track to be even more profitable than normal, with its earnings before interest, tax, depreciation and amortisation up 4.4 per cent for the 2020 financial year at $826m.

Its online sales have soared by 28.6 per cent as liquor sales increased with consumers staying home to prevent the spread of the coronavirus.

The rationale for Woolworths to demerge Endeavour Group is to relieve the company of any reputational damage from being a major poker machine operator.

Working on the transaction for Woolworths has been Citi and UBS, while JPMorgan has advised Woolworths’ joint venture partner in ALH, Bruce Mathieson.

Endeavour has been an attractive target for private equity, with firms Apollo Global Management and The Carlyle Group said to have earlier sounded out Woolworths about their interest in a sale, offering more than $10bn for the business.