Woolworths shareholders back Endeavour Group split is historic vote

Dan Murphy’s parent company Endeavour Group will list on the ASX on Thursday after shareholders backed a historic split from Woolworths.

Dan Murphy’s has become a leading liquor retailer in Australian under Woolworths’ ownership.

Investors will have their first opportunity to directly invest in Woolworths’ sizeable portfolio of liquor stores, winemakers, pubs and gaming machines on Thursday when shares in Endeavour Group hit the market to become the ASX’s newest top 50 public company.

From the flagship Dan Murphy’s chain founded in 1952 and that dominates the Australian liquor market, to its premium wine auction site Langton’s and a national pubs chain led by the Mathieson family, it will all be now be bundled together and squarely in the public eye as it trades on the sharemarket.

The listing on June 24 of Endeavour Group shares, which could see the company valued at as much as $15bn when trading commences, comes after Woolworths shareholders voted overwhelmingly in favour for a historic demerger and split of the retail giant at a meeting in Sydney on Friday.

The demerger will allow Woolworths to move closer to its chief executive Brad Banducci’s strategy to transform the retailer into a more pure-play on grocery and food, while also offering to investors the choice to invest separately in liquor, hotels, pubs and pokies.

Woolworths shareholders will be handed one share in Endeavour Group for every one share in the supermarket they own, with the market capitalisation of the new drinks and pubs business to be set when the first shares begin trading hands on Thursday.

Under the demerger proposal, Woolworths and Bruce Mathieson Group, which is a joint venture partner in the hotels part of the business, will each hold a 14.6 per cent interest in Endeavour after the demerger. It is unclear if Woolworths sees itself as a long-term holder of its stake, while Woolworths has also dangled before its own investors the hopes of a capital return of as much as $2bn once the demerger was sealed.

Some analysts have concerns over the debt Endeavour Group will be saddled with when it emerges in July as the newest top 50 company in the ASX, although it has strong cashflows and liquor has been a star performer even during the Covid-19 pandemic.

It is estimated Woolworths will tip $5bn of debt into Endeavour Group, which could limit its growth potential because it also needs capital expenditure to pour into updating its 12,000 poker machines and its network of pubs and hotels.

Jason Beddow, chief executive at investor Argo Investments, which has $120.4m worth of Woolworths shares, told The Weekend Australian it was unclear as yet how the market would view Endeavour Group shares when they listed and the value attached to the businesses.

“If this trades really poorly, there’s probably some value in it and equally if it for some reason it rallies really hard there could not be value there, but the business has been with Woolworths for a very long time and so it shouldn‘t surprise anyone what it does — but how it trades independently will be interesting.

“Maybe there are people who from an ESG angle wouldn’t own it, so it gets naturally sold down?

“We are neutral, we definitely look at ESG and have policies and plans but we haven’t precluded gaming in our investment process and what we can own, so we can own Endeavour.”

The business does have huge growth potential, despite the pandemic, with new format Dan Murphy’s stores, the popularity of convenience stores such as BWS and easing restrictions seeing a return to socialising at pubs and hotels helping to bolster its earnings trajectory.

Woolworths chairman Gordon Cairns called on shareholders in the supermarket retailer to vote in favour of the multi-billion dollar demerger of its drinks and hotels business Endeavour Group at the EGM on Friday, saying it will prove a positive move for both businesses.

“We believe shareholder value will be enhanced through a greater focus on each business’s core customer offering, unlocking growth opportunities and continuing to benefit from a win-win partnership in areas where it makes sense,” Mr Cairns said.

Ultimately 99.85 per cent of votes were in favour of the demerger.