Woolworths looks to June demerger or float for Endeavour with Carlyle, BGH in frame

The Carlyle Group has been under the spotlight with a view in the market that it is firming as the most likely buyer of the $10bn Endeavour, which houses the Dan Murphy’s liquor chain. Picture: Toby Zerna

Supermarket giant Woolworths is believed to be angling for a demerger or float of its Endeavour Drinks on or around June 28, sources say.

This is if it is not sold to private equity first.

As earlier suggested by this column, The Carlyle Group has been under the spotlight with a view in the market that it is firming as the most likely buyer of the $10bn Endeavour, which houses the Dan Murphy’s liquor chain.

But the operation is a big bite even for a major private equity powerhouse such as Carlyle.

Also keen to buy Endeavour is BGH Capital, which has been getting advice from Macquarie Capital.

The idea of both buyout funds teaming up to acquire the business has not been ruled out.

After all, BGH is made up of top Australian-based TPG Capital executives, and TPG and Carlyle have worked together on transactions in the past.

The pair teamed up to buy the nation’s second-largest hospital operator, Healthscope, in 2010 for $2.7bn.

A sale could coincide with a move by the nation’s largest fruit and vegetable retail, Harris Farm, to put its business on the market.

Harris Farm has hired Goldman Sachs, fuelling suggestions that a full or partial sale is on the cards, although some believe it could simply be looking to refinance debt.

Both Woolworths and Coles are known to be keen buyers of the business.

Weighing in favour of a demerger is that the move would be tax-free for Woolworths, whereas a sale comes with a tax liability so only a knockout price would win the board over.

Carlyle is likely to be able to pay only about $1.5bn from one of its funds.

Any buyer of Endeavour needs $5bn worth of equity, with some suggesting that any interested acquirer would have to offer more than $13bn for it to be successful.

However, in other transactions, private equity firms like Carlyle have got investors in their funds to co-invest in transactions.

Carlyle would be likely to tap a major investment bank such as Credit Suisse, Jefferies, Morgan Stanley or Goldman Sachs for funding its bid, at a time when debt remains cheap.

Jarden Australia, Citi and UBS are advising Woolworths, while JPMorgan is advising Endeavour’s other 14.6 per cent shareholder, Bruce Mathieson.

Woolworths told the market in its half-year results last month that it would “most likely” divest Endeavour through a demerger around June.

No process is under way for private equity groups to bid for Endeavour, but it is understood that informal talks are taking place.

Endeavour houses more than 537 retail liquor outlets, and a nationwide stable of 323 licensed pubs.

The liquor arm of the business posted earnings growth of 24.1 per cent and a sales uplift of 19 per cent for the first half of the 2021 financial year to $5.7bn, despite shuttered pubs and other challenges posed by the health crisis.