Wesfarmers today announced its intention to demerge its Coles division, which is set to be led by current Metcash CEO of Supermarkets and Convenience, Steven Cain, later this year.
The proposed demerger would see Coles’ supermarkets, online, liquor stores, fuel and convenience, financial services and hotel divisions operate as a standalone company, of which Wesfarmers would retain a minority ownership interest of up to 20 per cent. Wesfarmers also proposes to retain a substantial ownership stake in flybuys to support continued access to the loyalty program and continued investment in data-analytics capabilities.
Wesfarmers acquired Coles as part of Coles Group in 2007 and since then has successfully turned around the business and restored its position as a leading Australian retailer. Under Wesfarmers’ ownership, more than $8 billion of capital has been invested in the business across the store network, supply chain and online channel. Long-term collaborative partnerships have been developed with many suppliers, and prices have been reduced for customers for eight consecutive years.
The decision to demerge follows a review of the Wesfarmers portfolio and an assessment of the composition of its capital employed to support higher levels of future growth and total shareholder returns. As at December 31, 2017, Coles accounted for about 60 per cent of the Group’s capital employed and 34 per cent of Group divisional earnings.
Wesfarmers Managing Director Rob Scott says the Group is repositioning its portfolio to target a higher capital weighting toward businesses with strong future-earnings growth prospects.
“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately,” he said. “It’s now a mature and cash-generative business, which is expected to have a strong balance sheet and dividend-paying capacity. Coles will be well positioned to continue to deliver long-term earnings growth, with an earnings profile that’s expected to be resilient through economic cycles.”
“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value-accretive transactions. The capacity to act opportunistically will be retained through a strong balance sheet and a cash-generative portfolio. The Group expects to retain its current strong credit ratings and the dividend policy will remain unchanged.”
The proposed demerger is subject to shareholder and other approvals. If approved, the demerger would be expected to be completed in the 2019 financial year.
It is anticipated that the proposed demerger would create a new top-30 company listed on the Australian Securities Exchange, with leading positions in supermarkets, liquor and convenience.
Leadership succession
Wesfarmers also announced that Steven Cain will be the next Managing Director of Coles, succeeding John Durkan, who will step down later this year after 10 years in senior leadership positions at Coles, including four as Managing Director.
Mr Scott says Mr Durkan has decided it’s the appropriate time for a leadership transition as Coles enters its next chapter. He will remain in an advisory capacity following the leadership change to ensure a seamless transition.
“John has made an enormous contribution to the successful turnaround of Coles under Wesfarmers’ ownership, and we look forward to him continuing to lead the business as we prepare for demerger,” Mr Scott said.
Mr Cain is currently CEO of Supermarkets and Convenience at Metcash and will bring significant local and international business experience when he joins the Group.
Mr Cain began his career with Bain & Co before moving into retail with UK retail group Kingfisher plc, later helping to transform supermarket chain Asda, where his roles included group marketing director, store development director and grocery trading director. Later roles included being CEO of FTSE 100 media group Carlton Communications plc, managing director of food, liquor and fuel at Coles Myer, and operating director and portfolio company chairman at private equity firm Pacific Equity Partners, before joining Metcash in 2015. Mr Cain was also an adviser to Wesfarmers on its takeover of the Coles Group in 2007.
“Steven brings a wealth of experience in international and Australian retailing with organisations such as Asda, Kingfisher, Coles and Metcash,” Mr Scott said. “This, combined with his experience as a listed-company CEO, positions Steven well to lead Coles after the demerger.”
Mr Cain says he is very excited at the opportunity to join Coles as it embarks on the next phase of its evolution as a great Australian retailer.
Mr Cain will be succeeded at Metcash by Scott Marshall, who has headed the group’s liquor division for four years.