Wesfarmers to spin off Australian supermarket chain Coles into separate company

Retail industry news : Australian supermarket chain Coles Supermarkets is all set to be spun off from its parent company Wesfarmers into a new $18 billion independent company listed on the Australian Securities Exchange (ASX).

Wesfarmers is expected to retain a stake of 20% in Coles following the demerger, according to reports.

The decision comes after more than ten years of the A$19.3 billion acquisition of Coles Group by the Australian conglomerate Wesfarmers. Coles Group was made up of Coles Supermarkets, Kmart, Target

Wesfarmers says that it has arrived at the decision after a review of its portfolio and an evaluation of the composition of its capital allocated to support increased levels of growth in the future along with total shareholder returns.

One of the Coles supermarkets in Melbourne. Photo courtesy of Wpcpey/Wikipedia.org.

While 60% of Wesfarmers’ capital was allocated for Coles, it had returned 34% of earnings for its parent company as of 31 December 2017.

Wesfarmers expects the proposed Coles spin off to create a new top 30 company on ASX across the supermarkets, liquor and convenience sectors.

Rob Scott – Wesfarmers Managing Director, commenting on the Wesfarmers demerger of Coles, said: “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.

“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.

Further, Rob Scott said that the Coles spin off will enable Wesfarmers to focus on growth opportunities in its remaining businesses and aim at value accretive transactions.

The Wesfarmers demerger of Coles will be completed based on shareholder and other approvals.

Founded in 1914, Coles is said to have more than 800 supermarkets across Australia and over 100,000 employees.