Woolworths Group Ltd (ASX: WOW) has a plan to sell its business which contains Dan Murphy’s, what will the share price do in response?
Woolworths was founded in 1924 by Percy Christmas, its first store was opened in Sydney’s Imperial Arcade. Woolworths is Australia’s largest supermarket business, it operates Woolworths supermarkets in Australia and Coundown in New Zealand. It also runs the retail department store Big W. With over 3,000 stores and more than 200,000 employees it’s one of Australia’s largest employers.
Woolworths’ Sale Plans
The supermarket giant has announced it intends to combine its drinks businesses, Endeavour Drinks and ALH Group, into a single business to be called Endeavour Group.
After the two businesses are combined, Woolworths will attempt to divest the business either through a demerger or through “other value-accretive” alternatives, which I presume could mean a sale to a buyer.
If everything goes according to plan the separation will happen in the calendar year 2020.
Explaining the decision, Woolworths Chairmain Gordon said: “The Board believes that a merger of Endeavour Drinks and ALH followed by a separation, is in shareholders’ best interests and will benefit customers and team members of both groups.
The decision has been taken after consideration of the future prospects of both businesses and how they can be best realised. It reflects the Board’s focus on maximising long-term shareholder value.”
Essentially, it means Woolworths wants to focus on a simplified business structure with a particular focus on the core food and everyday needs markets.
The combined Endeavour and ALH business will be the largest drinks and hospitality business with sales of around $10 billion and EBITDA (click here to learn what EBITDA means) of $1 billion. It will have more than 1,500 BWS and Dan Murphy’s outlets, with 327 ALH hotels.
Woolworths said that ALH retail drinks outlets currently comprise approximately 35% of Woolworths Group retail drink sales with 86 Dan Murphy’s and 512 BWS stores owned by ALH.
This seems like an interesting move by Woolworths, as its Dan Murphy’s business has been a solid performer over the past few years. Whilst I think it’s good for Woolworths to benefit from a simpler structure, it would seem to putting all of its earnings in the one basket of its supermarket business (with a bit of Big W earnings).
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.