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Wesfarmers seeking to demerge Coles to facilitate growth for its other businesses

Wesfarmers intends to demerge its Coles division, with the aim being to transform the supermarket chain into a separate, top 30 company on the ASX so it can focus on growth opportunities for its remaining businesses.

Commenting on the proposed demerger, which is subject to shareholder and other approvals, Wesfarmers Managing Director Rob Scott said the conglomerate was repositioning its portfolio to target a higher capital weighting toward businesses with strong future earnings growth prospects.

“Wesfarmers acquired Coles as part of Coles Group in 2007 and since then has successfully turned around the business and restored its position as a leading Australian retailer,” he said.

“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately. It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity. Coles will be well positioned to continue to deliver long-term earnings growth, with an earnings profile that is expected to be resilient through economic cycles.

Scott said a demerger of Coles, which accounted for 34% of Wesfarmers’ divisional earnings at 31 Decembr 2017, will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses, including Bunnings, Kmart, Officeworks, and its Industrials portfolio.

Despite the demerger, Wesfarmers intends to retain a minority ownership interest of up to 20% in Coles, to support strategic alignment between Wesfarmers and Coles in relation to various growth initiatives, including in the areas of data and digital. Wesfarmers also proposes to retain a substantial ownership stake in flybuys to support continued access to the loyalty program and continued investment in data analytics capabilities.

The orposed demerger coincides with an announcement that Steven Cain – currently, CEO of Supermarkets and Convenience at Metcash – will be the next Managing Director of Coles, succeeding John Durkan, who will step down later this year after 10 years in senior leadership positions at Coles, including four as Managing Director.

Scott said Durkan will remain in an advisory capacacity following the leadership chang to ensure a seamless transition. He added, “John has made an enormous contribution to the successful turnaround of Coles under Wesfarmers’ ownership and we look forward to him continuing to lead the business as we prepare for demerger.”

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James Harkness

James Harkness

James Harnkess previous editor at Dynamic Business

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