Wesfarmers outlines demerger plans to spin off Coles into separate company

Retail giant Wesfarmers has outlined plans to spin off its Coles supermarket business into a separate ASX-listed company, with a new managing director slated to take the helm from later this year.

This morning the company released a statement and presentation to shareholders about the proposal, which would see a demerger that would position Coles as a standalone, ASX 30 business focused solely on food and groceries.

Subject to shareholder approval, Wesfarmers says the process could be completed in the 2019 financial year.

Wesfarmers owns a range of operations including industrial businesses, Bunnings, Kmart, Officeworks and Target. In 2017, there were rumours of a potential spin off of the Officeworks brand, but Wesfarmers told shareholders that after a review, it had decided not to pursue an IPO of the stationery business.

The plan as outlined this morning would see Coles spun off into a new business, with Wesfarmers to retain the other brands, as well as a 20% stake in Coles and a “substantial ownership stake” in the loyalty operation Flybuys.

If the demerger is successful, the company said Wesfarmers shareholders would receive Coles shares in proportion to their current holdings.

Wesfarmers acquired Coles in 2007 for $22 billion. In a briefing to shareholders on the proposal, it highlighted that it had repositioned the brand for growth and delivered a 9.5% compound annual growth rate on earnings before interest and tax.

In 2017, Coles stores banked $1.609 billion in revenue.

The company said the spinoff would build Coles into a leading competitor in the “grocery, liquour and convenience” markets.

Management also took the opportunity to announce this morning that Coles managing director John Durkan would be stepping down later this year, to be replaced by Metcash’s supermarkets chief executive, Steven Cain.

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