Wesfarmers Coles demerger details

On 23 July 2018, Wesfarmers Limited (ASX: WES) announced their intention to demerge the Coles and flybuys businesses from the Wesfarmers group in November 2018. As the Wesfarmers/Coles corporate action is likely to impact many Australian investors using Sharesight to track their investment portfolio, here are the important details:

Details of the Wesfarmers Coles demerger on the ASX

• Demerger of Coles from Wesfarmers Limited is expected to be completed in November 2018, subject to shareholder and other approvals.
• Wesfarmers will retain 15% ownership of Coles.
• Coles is expected to demerge as a top 30 ASX-listed company.
• Shareholders will receive new shares in Coles proportional to their existing shareholding (after taking into account the 15% of Coles shares retained by Wesfarmers).
• Wesfarmers and Coles will each own a 50% stake in flybuys.
• Coles intends to follow Wesfarmers’ approach to dividends, with a dividend payout ratio ranging from 80-90%.
• Distribution of Coles shares is expected to qualify for demerger relief from Capital Gains Tax on the transaction, subject to ATO ruling.
• James Graham AM to be appointed Chairman of Coles on completion of the demerger, and David Cheesewright, Jacqueline Chow and Richard Freudenstein to be non-executive directors. Discussions underway with potential additional directors.

Background on the Wesfarmers Coles demerger

The case made by Wesfarmers for the demerger of the Coles portfolio of businesses is that the company is repositioning both businesses after a successful turnaround of Coles Group Ltd after purchasing the company for $19.3 billion in 2007.

Coles is a strong business in a market that does not have significant opportunities for growth (Australians can only consume a finite amount of groceries and liquor each week), so through this demerger Wesfarmers seeks to allocate more capital to businesses with higher earnings growth potential.

Wesfarmers Managing Director Rob Scott said the demerger represented a significant repositioning of the group’s portfolio:

“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.”

Handling the Wesfarmers Coles ASX demerger in Sharesight

Full details on how to handle the Wesfarmers Coles ASX demerger will be available on the Sharesight help site when they are finalised, and we’ll update this blog with a link to the guide when it’s ready.

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FURTHER READING

• Help -- Mergers
• Blog -- Corporate actions and your investment performance
• Blog -- Why I use Sharesight to track my portfolio
• Blog -- Fairfax (FXJ) and Domain (DHG) demerger details