Australia’s Woolworths to demerge drinks, hospitality business

FILE PHOTO: Shoppers walk into a Woolworths supermarket in Sydney, Australia August 22, 2017. REUTERS/Jason Reed

Australia’s biggest supermarket chain Woolworths Group Ltd said on Wednesday it would combine and spin off its drinks and hospitality divisions to sharpen its focus on its core supermarket business amid intensifying competition.

Woolworths said it would demerge the combined Endeavour Drinks and ALH Group to create the largest integrated drinks and hospitality business in Australia, with sales of about A$10 billion ($7 billion) and EDBITDA of A$1 billion.

Shares of the grocer rose as much as 4% in early trade, hitting a more than one-month high and driving gains on Australia’s benchmark index.

“In putting together the two, it makes it a more palatable and more attractive sale,” said Michael McCarthy, chief strategist at CMC Markets and Stockbroking.

The Australian supermarket sector is facing growing competition from the likes of second-place Coles Ltd, which has recently embarked on A$1 billion worth of cost cuts, and discounters like Germany’s ALDI Inc

The merger is expected to be completed in the second half of 2019, and the new company, to be called Endeavour Group, would be spun off next year.

Bruce Mathieson Group, which runs ALH Group as part of a joint venture with Woolworths, would swap its interest in ALH for a 14.6% stake in the combined entity.

Woolworths intends to retain a minority stake in the new company once it has been demerged, and expects one-off costs of no more than A$275 million, it said in a presentation released to the Australian Stock Exchange.

Woolworths Chief Financial Officer David Marr would move to the new role of chief operating officer to focus on the merger and subsequent separation of Endeavour Group. Stephen Harrison, would step in as CFO from Aug. 1.