The move took the Australian stock market by surprise as the retail division of Wesfarmers that includes stores; Coles, Liquorland, Kmart, Target, Bunnings and Officeworks accounts for 60 per cent of the company’s capital base.
The 104 year old company that began as a cooperative for Western Australian farmers said the decision came after a full review of Wesfarmers entire business portfolio.
Wesfarmers managing director Rob Scott said the company was repositioning its portfolio toward businesses with strong future earnings growth prospects and higher capital investment.
“Wesfarmers acquired Coles as part of Coles Group in 2007 for $22 billion and since then has successfully turned around the business and restored its position as a leading Australian retailer,” Mr Scott said.
“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately,” he said.
“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions. The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio.”
Wesfarmers chairman Michael Chaney said the demerger would extend Wesfarmer’s long history of actively managing its portfolio.
“The group’s operating model has benefited our shareholders over the long term and will continue to provide the framework for future capital allocation decisions,” Mr Chaney said.
Wesfarmers was yet to put a price on the demerger, but investment bank Credit Suisse recently valued just the Coles brand and its convenience stores at roughly $21 billion.