The Woolworths Group Ltd (ASX: WOW) share price is under the spotlight after it announced it’s selling down its stake in Endeavour Group Ltd (ASX: EDV).
The supermarket business used to own all of Endeavour Group, which is the business that operates liquor businesses (such as Dan Murphy’s and BWS) and hotels.
Woolworths selldown
The supermarket business is going to sell 5% of Woolworths’ shares via a block trade at $5.22 per share, generating proceeds of $468 million.
After this sale, Woolworths’ holding of Endeavour Group will be 4.1%. Woolworths Group has committed to retain its remaining Endeavour Group shares for at least 60 calendar days, subject to “customary exceptions”.
Should owners of Endeavour Group shares worry?
The supermarket business said it “does not possess any information that is generally available that a reasonable person would expect to have a material effect on the price or value of Endeavour Group securities”.
Is Woolworths expecting the Endeavour share price to fall? Does it think it’s overvalued? It’s still holding a very sizeable amount of Endeavour shares, so keep that in mind.
What’s going to happen with the money?
Woolworths said it intends to use the proceeds of the sale to return capital to shareholders and will provide an update at the company’s FY24 result which will be delivered in August.
When a business says a return of capital, it usually means by paying a (special) dividend and/or carrying out a share buyback.
Management commentary
The Woolworths CEO Brad Banducci said:
While Woolworths Group and Endeavour Group remain important business partners, with a number of long term partnership agreements in place, we no longer believe that a material equity investment in Endeavour Group is required as Endeavour Group approaches its three-year anniversary as an independent listed company.
As a result, we have decided to reduce our stake below 5% with the intention to use the proceeds to return capital to shareholders. We currently have no intention to sell the remaining stake, but will continue to assess what we believe is in the best interests of Woolworths Group shareholders.
Final thoughts on the Woolworths share price
The Woolworths share price had dropped close to 20% over the last 12 months before this announcement. The news of a dividend/buyback may help investor confidence.
If interested in Woolworths shares, I think this could be a good time to think about the business with its share price now a lot lower than it was a year ago. That’s appealing for a defensive business amid the ASX share market being close to the all-time high. The relative value is better.
