15/11/2018 - 14:40

Coles demerger approved by Wesfarmers

15/11/2018 - 14:40

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Wesfarmers shareholders have voted to approve the $20 billion demerger of its supermarket business Coles, 11 years after it acquired the group in Australia’s biggest corporate takeover.

Wesfarmers chairman Michael Chaney. Photo: Gabriel Oliveira

Wesfarmers shareholders have voted to approve the $20 billion demerger of its supermarket business Coles, 11 years after it acquired the group in Australia’s biggest corporate takeover.

Ahead of the vote, Wesfarmers chairman Michael Chaney said he and the board believed that a Coles demerger would enhance Wesfarmers’ returns by shifting investment weighting and focus towards businesses and opportunities with higher future earnings growth prospects.

Wesfarmers will retain a 15 per cent stake in Coles as well as a 50 per cent holding in the flybuys joint venture with Coles.

Mr Chaney told shareholders Coles was being demerged with a strong balance sheet and would be led by people with the skills and background to drive its success.

“It is not typical in demergers for the parent company to retain a stake in the demerged entity,” Mr Chaney said.

“However, I remind you that this will be Australia’s biggest demerger and it is not a demerger of non-core assets.

“We believe Coles is a great business and we will join our shareholders in having skin in the game in its future success.

“We won’t have any operational control but the relationship deed we have entered into with Coles means this 15 per cent stake does give us a seat at the table through an entitlement to appoint a director to the board.”

Wesfarmers will retain four divisions – Bunnings, Department Stores, Industrials and Officeworks.

Eligible Wesfarmers shareholders will receive one Coles share for each Wesfarmers share they hold on the record date.

Trading of Coles shares, on a deferred settlement basis, is expected to commence on November 21.

At the Wesfarmers’ AGM, held immediately before the general meeting to vote on the Coles demerger, Mr Chaney spoke about the $1 billion impairment charges and disposal costs of the company’s disastrous foray in the Bunnings UK and Ireland business.

Wesfarmers sold out of Bunnings UK in May, with the total cost running to $1.02 billion in impairments, write-offs and store closure provisions.

Mr Chaney said although the company was disappointed with the Bunnings UK outcome, it would not deter Wesfarmers from continuing to look for investment opportunities outside Australia.

“Notwithstanding the poor performance of the Homebase chain, we did conclude early this year that there remains potential for a Bunnings-like business to operate successfully in the UK market,” he said.

“Giver the lessons we learned there, however, in particular how competitive the market is, we concluded that the additional effort and investment required would not be justified by the modest returns likely to be achieved in the long run, and it was in our shareholders’ best interests to exit the business.”

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