The Woolworths Group Ltd (ASX: WOW) share price is on watch today after it was reported that private equity was having a look at Endeavour Drinks.
What’s going on?
Endeavour Drinks is the division within Woolworths that owns hotels, pokes and the alcohol retailers such as Dan Murphy’s and BWS.
Woolworths has been working on selling this division for some time. One of the first times Rask Media covered it was back in July 2019 when the blue chip business said at the time that the Endeavour business would be the largest drinks and hospitality business in Australia with sales of around $10 billion and EBITDA (EBITDA explained) of $1 billion. It would have more than 1,500 BWS and Dan Murphy’s outlets, with 327 ALH hotels.
But now the Australian Financial Review’s Street Talk is reporting that private equity is getting a closer look at the Endeavour business. The newspaper named The Carlyle Group and BGH Capital as two interested parties that could try to buy the business before a potential listing. There is also an unnamed third potential offshore bidder, which could be Apollo Global Management.
Street Talk also said that: “Woolworths and its bankers are understood to be calling for fully-formed bids imminently. The supermarkets giant wants to properly assess – and likely rule out – private equity interest, before forging ahead plans to spin Endeavour Group off to existing Woolworths investors.”
The newspaper believes that the supermarket business prefers a spin off, which would allow existing shareholders to benefit from the growth in the Endeavour business.
Is this good news for Woolworths?
Having potential buyers interested in the business is a good thing because it shows the market that there’s good underlying value in the Endeavour business. The two sides of Endeavour Group are seeing rather variable performance. The hotels have been struggling because of COVID-19 impacts, though alcohol sales have been rising significantly due to more in-home consumption.
In the HY21 result, Woolworths said that Hotels revenue was down 27.5% to $667 million whilst Endeavour Drinks revenue was up 19% to $5.68 billion.
I’m not sure I’d want to do anything with Woolworths shares based on this news alone. Its share price is now a lot higher than it was a couple of years ago, so I’m happy to watch from the sidelines.
