Wesfarmers Limited Edging Low on Coles Demerger Update

Wesfarmers Limited’s (ASX: WES) stock tumbled by 1 per cent on July 23, 2018 after the announcement of Coles demerger update in which Wesfarmers’ shareholders will receive 1 Coles share for every Wesfarmers share held. The deal is expected to be completed by November 2018, subject to shareholder and other approvals. As per the update, the group will retain 15% minority stake in Coles to support strategic alignment between the two companies in relation to various growth initiatives, including in the areas of data, digital and loyalty. Moreover, the group will also retain its 50% existing ownership in flybuys business to support the continued development of the loyalty program and better leverage the combined Coles and Wesfarmers digital and data ecosystem to improve their respective customer offers. According to the management, the deal represents a significant repositioning of the Group’s portfolio to set up both the WES and Coles for the success over the next 10 years. Post-demerger, the group will have a portfolio of cash generative businesses with strong returns on capital, good momentum and leading positions in their respective markets.

The management has instructed that Coles will be demerged with a robust balance sheet with Net debt of approximately $2 Bn, which it believes to support a strong Baa1/BBB+ credit rating with substantial headroom. James Graham AM has retired as a non-executive director of the company with immediate effect, coincident with his appointment as Chairman-elect of the proposed demerged Coles group. Besides this, David Cheesewright, Jacqueline Chow, and Richard Freudenstein are to be proposed as non-executive directors. The discussions are in progress with potential additional directors.

Wesfarmers Limited traded at a market price of $49.490 with the market capitalization of circa $ 56.69 Bn (AEST: 03:15 P.M.)


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