Bruce Mathieson in $2bn Woolworths pubs jackpot

Bruce Mathieson has consolidated his reputation as our pubs and booze supremo.

Bruce Mathieson: ‘It is a great deal for me and my family.’ Picture: Russell Shakespeare

Billionaire Bruce Mathieson has consolidated his position as Australia’s pubs and booze supremo, emerging with a stake worth up to $2 billion in hotel and liquor giant Endeavour Group after striking a deal with Woolworths that puts the supermarket business on the path to exiting its controversial link to poker machines.

Mr Mathieson will control a group that will be the third-biggest in terms of pokies in Australia, behind casino groups Crown and The Star and, combined with thousands of pub and the BWS and Dan Murphy’s liquor outlets, the largest drinks chain in the country, will generate revenue of $10 billion annually and have pre-tax profits of about $1bn.

While Woolworths will for now keep the rest of the 85.4 per cent stake in Endeavour it will almost certainly spin off the business in 2020, with sources indicating the company could maintain a minority 14-15 per cent shareholding in a listed business and return a significant chunk of the estimated $5bn-$6bn proceeds to shareholders.

Mr Mathieson, who yesterday said he would quietly celebrate the deal with a meal of BBQ sausages and boiled eggs at his Gold Coast mansion, told The Australian he would be free to turbocharge the growth of Endeavour, and signalled an expansion program of buying more pubs and opening more liquor outlets across the country, to add to the 327 hotels and 1565 Dan Murphy’s and BWS stores already in the Endeavour portfolio.

“It will be a fabulous business and it is a great deal for me and my family. And it has been a fabulous partnership with Woolworths. There really is a lot of growth in the business, and we can really concentrate on that.

“There really is a lot of potential, we think.

“We love the industry.

“We’ve been concentrating on the retail and liquor side of things for a long time, probably the last 10-12 years, and now it is time to concentrate on the other side. We can look at refurbishing and extending the pubs and potentially developing them as well.”

The deal was previously flagged by The Australian’s DataRoom, with the column reporting last month a demerger was said to be imminent.

Woolworths chief executive Brad Banducci was keen to play down suggestions his business had bowed to pressure from anti-pokies activists to divest its link to the controversial gambling sector, though sources indicated it had long been a concern for Woolworths management.

“This decision was made to give both businesses the chance to achieve their potential,” Mr Banducci said, claiming that gaming accounted for about 7 per cent of revenue. “It (poker machines) has not been the primary driver.”

The move leaves Woolworths as a core grocery business and will bring an end to its partnership with Mr Mathieson, who has a fortune estimated at $1.18bn in The List — Australia’s Richest 250, that begun just after the billionaire and former Woolworths boss Roger Corbett met at a corporate hospitality function at the 2000 Sydney Olympics.

Their existing hospitality joint venture, ALH, of which Mr Mathieson holds a 25 per cent stake and 30 per cent economic interest, merges with Woolworths’ Endeavour Drinks division.

Bruce Mathieson Group has agreed to swap its interest in ALH, which it manages, for a 14.6 per cent stake in the combined Endeavour Group and will maintain board representation and management if a demerger becomes effective. Woolworths would retain a minority holding in a demerged Endeavour Group.

Woolworths FY18 earnings split ($m)

Mr Banducci said a demerged company would be attractive for shareholders and would likely place “in the middle of the ASX100” should it be listed, suggesting expectations of market capitalisation of at least $10bn.

He said there was clear scope for the new Endeavour to expand, given Woolworths had not opened any new Dan Murphy’s in 2019 after a previous annual rate of well over 10 stores, and had acquired only acquired five hotels in the past year, also relatively low.

“It is 25 per cent of EBITDA of Woolworths and gets only 15 per cent of its (capital expenditure). There will be much more ability for the priority for capex. As a separate entity we will look at how to grow the number of outlets.

“There are lots of opportunities in the drinks and hospitality network. We have not invested as we should have in the past few years in Endeavour drinks in the digital space, for example. E-commerce and home delivery are also very important and are growing.”

$33.82 Woolworths closed up 89¢ p

Mr Mathieson, meanwhile, played down concerns of slowing sales at Dan Murphy’s — a long-time juggernaut — in the past year, which Woolworths management had previously conceded was trading below expectations.

“It is a wonderful business and I think there is some great potential for growth there as well. I guess with anything that has double-digit growth for so long, you’ll get a plateau eventually. But we think there is fantastic potential for it.”

How The Australian’s DataRoom column revealed the story

The merger of Endeavour and ALH is expected to be completed in the second half of calendar 2019.

As part of the business changes, Woolworths CFO David Marr will move to the new role of chief operating officer and oversee the merger and potential subsequent separation of Endeavour. He will be replaced by Woolworths’ Australian food finance director Stephen Harrison on August 1.