Wesfarmers to demerge Coles in November

25 July, 2018 by Andy Young

Wesfarmers has announced that its plans to demerge the Coles division of its business have progressed well and that it expects the demerger to be completed in November 2018.

Wesfarmers said it will retain a 15 per cent share in Coles, which will help “to support strategic alignment between the two companies in relation to various growth initiatives”.

Advertisement

The group also announced a number of proposed director appointments, with former non-executive director of Wesfarmers, James Graham AM, to be appointed as the Chairtman of Coles in the demerger goes ahead.

Wesfarmers Managing Director Rob Scott said the demerger represented a significant repositioning of the Group’s portfolio to set up both Wesfarmers and Coles 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.

“Post-demerger, Wesfarmers will have a portfolio of cash generative businesses, with strong returns on capital, good momentum and leading positions in their respective markets.”

“Following a successful turnaround under Wesfarmers’ ownership, Coles has developed strong investment fundamentals as a mature and cash generative business with a resilient earnings profile. Coles is well-positioned to be operated and owned separately, having established strong corporate infrastructure and management capabilities under Wesfarmers’ model of divisional autonomy.

“Maintaining a strategic stake in Coles provides an important connection with Wesfarmers to reinforce opportunities to collaborate in the data, digital and loyalty areas.”

He added: “Wesfarmers is committed to demerging Coles with a strong balance sheet. Coles is expected to have net debt of approximately $2bn to support a strong Baa1 and/or BBB+ credit rating. Combined with a favourable lease commitment profile, this will provide good access to capital and balance sheet capacity to support strategic flexibility, dividends and investment plans.”

Speaking about the appointment of the new Coles Chairman, current Wesfarmers Chairman, Michael Chaney said that Graham had extensive commercial, capital markets and governance experience, including as a former Chairman of Rabobank Australia and Darling Harbour Authority, and a strong understanding of the Coles business through his Wesfarmers directorship. In his corporate advisory career, he had worked with the boards of many companies across a range of sectors on all aspects of the development and positioning of large corporate businesses.

“James’ experience and integrity, coupled with his affinity for the Coles business, and respect and understanding of the brand and its history, positions him ideally to help guide its future strategic direction and ongoing focus on the creation of value for Coles shareholders,” Chaney said.

“He has been an outstanding director of Wesfarmers and will be a passionate and committed Chairman of Coles.”

Regarding the technical aspects of the demerger, Wesfarmers said: “The demerger is subject to final Board approval, regulatory, court and shareholder approvals. Subject to initial court approval, a scheme booklet containing detailed information about the demerger is expected to be sent to shareholders in October 2018, with a shareholder meeting to consider and vote on the demerger to be scheduled for November 2018. Final court approval will be sought following the shareholder meeting. If approved, the demerger is expected to be completed in late November 2018.”

The demerger will be effected by way of a scheme of arrangement, under which eligible shareholders will receive one Coles share for every Wesfarmers share held on the applicable record date.