Focus on Endeavour’s next voyage with pokie reform on horizon

If Endeavour traded as merely a liquor retailer, the stock might rerate. But unwinding the pubs from Endeavour would be extremely complex.

Endeavour’s market value is now about $11bn, the same as when it listed as part of its spin-off from Woolworths in 2021.

Does this mean the private equity funds that originally looked at the business are back around the hoop?

Endeavour has brought in Citi and Jarden.

So the question is what is the remit of the investment banks, and some say it could be one of two tasks.

The first could be to sell its pubs to appease investors worried about the dangers from an environment, governance and social (ESG) perspective, because the pubs contain slot machines, subject to gambling reform.

If Endeavour traded as merely a liquor retailer, the stock might rerate. But unwinding the pubs from Endeavour would be extremely complex.

Queensland laws require the two planks to be owned together, and to gain a strong price for the assets, they would likely need to be sold off individually.

This leaves the second option: the advisers are there to defend the company against inbound interest from a suitor.

Three private equity firms have considered an acquisition of the Woolworths spin-off in the past – BGH Capital, The Carlyle Group and Apollo Global Management.

The Melbourne-based BGH has recently been looking at pub operator Australian Venue Co, so it could turn to Endeavour.

Carlyle, meanwhile, has a new country head who could be looking to make his mark.

Dan Murphy’s is a category killer.

Consumer spending will continue during softer market conditions, and some take the view that Endeavour is being oversold by the market.

Adding to the argument is the fact that liquor, hotels and pubs are resilient, despite institutional investors often turning their backs on such assets.

Any deal would require the approval of the largest shareholder, publican Bruce Mathieson, who may opt to privatise the pubs, if that’s what’s at play.

And while funding for private equity deals is expensive right now, Endeavour’s real estate could be sold to help a buyer pay for a deal.

One source said a price of around $7.80 per share – its share price is currently $6.10 – would be enough to get a transaction across the line.

For the six months to January, the company’s property plant and equipment was valued at almost $2bn.

Endeavour is Australia’s largest network of liquor stores under the Dan Murphy’s and BWS brands.

It made $364m in net profit for the six months to January, up 17 per cent on the previous corresponding period.

Overall, it has the largest portfolio of licensed hotels with a network of more than 1675 stores and 344 hotels.