Wesfarmers details plan for Coles demerger

08 October, 2018 by Andy Young

Wesfarmers has revealed the details for the shareholder vote into its planned demerger of Coles and how the company will look should the proposed demerger proceed.

The Supreme Court of Western Australia has ordered a meeting of Wesfarmers shareholder be convened to vote on the proposed demerger. A scheme booklet has been sent to shareholders detailing the proposal, while an Independent Expert engaged by the Wesfarmers Board, Grant Samuel & Associates, has concluded the demerger was in the best interests of Wesfarmers shareholders.

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Wesfarmers Chairman Michael Chaney said Wesfarmers directors unanimously recommended shareholders vote in favour of the proposed demerger resolutions. Each Wesfarmers director intends to vote their own shares in favour of the demerger.

“Demerging Coles enhances Wesfarmers’ prospects of delivering satisfactory returns to shareholders by shifting our investment weighting and focus towards businesses with higher future earnings growth prospects,” Chaney said.

“Following a successful turnaround since it was acquired by Wesfarmers in 2007, Coles is once again a leading Australian retailer, well positioned to grow as a defensive business with strong investment characteristics.”

Wesfarmers Managing Director Rob Scott said the demerger represented a significant repositioning of the Group’s portfolio and would set up Wesfarmers for success over the next decade.

“The demerger will reposition the Group’s portfolio to target a higher capital weighting towards businesses with strong future earnings growth prospects,” Scott said. “After the demerger, Wesfarmers will have a portfolio of cash generative businesses, with strong returns on capital, good momentum and leading positions in their respective markets.”

Wesfarmers plans to retain a minority ownership interest of 15 per cent in Coles and a 50 per cent interest in the flybuys joint venture with Coles.

“Maintaining a strategic stake in Coles provides an important connection with Wesfarmers to reinforce opportunities to collaborate in the data, digital and loyalty areas. flybuys will be better able to realise its potential as a leading loyalty company through the ongoing support and investment of both Coles and Wesfarmers and by leveraging the broader networks of the Wesfarmers Group, including the existing partnerships with Kmart and Target,” Scott said.

If the demerger goes ahead it will see the creation of a new top-30 Australian listed company and Scott said that Wesfarmers was committed to ensuring Coles was set up with a strong foundation for success and growth as an independent listed company.

“Coles will be demerged with a strong balance sheet, including a net debt level that supports strong investment grade credit ratings,” Scott said.

“Coles’ experienced board and executive team ensures it will be led by an exceptional group of people with the background, knowledge and skills necessary to drive continued success in a dynamic and competitive environment.”

Coles Managing Director Steven Cain also said that Coles was well positioned for success over the next decade.
“We will continue to focus on ensuring that Coles remains a trusted brand for Australians and maintains its market leading position by continuously improving the customer experience,” Cain said.

“Coles will continue to deliver on its ‘Fresh Tomorrow’ strategy to improve its food offer, and move towards ‘Everyday Low Prices’. We remain focused on offering anytime, anywhere shopping, landing the right offer in every location, reducing costs and continuing to engage with team members, customers and the community.”

Coles has secured committed bank facilities of approximately $4bn, to support net debt of approximately $2bn at demerger, from a group of leading domestic and international banks with a prudent maturity profile. These facilities will provide significant liquidity headroom to cover cash flow variations, including peak working capital requirements, capital expenditure, dividend payments and bank guarantees.

Wesfarmers also said that its shareholders will retain their Wesfarmers shares and eligible shareholders will be entitled to receive one Coles share for every Wesfarmers share held. The demerger will not require any Wesfarmers shareholders to pay cash for Coles shares.

The meeting and vote on the demerger will take place in Perth on Thursday, 15 November and subject to the necessary approvals Wesfarmers expects the second court hearing will take place on Monday, 19 November 2018, with Coles shares to commence trading on the ASX on a deferred settlement basis from Wednesday, 21 November 2018.