What you need to know ahead of the Coles demerger vote

Wesfarmers shareholders will vote today at the company’s annual general meeting in Perth on a proposal to spin off Coles into its own ASX-listed entity.

Should the demerger proceed, Coles will begin trading on the ASX on a deferred settlement basis from November 21.

With the AGM scheduled to start at 10.30 am AWST (1.30pm AEST), the vote is expected to take place later in the afternoon.

We will update this story throughout the day as more details become available, but in the meantime, here’s what Wesfarmers boss Rob Scott, Coles managing director Steven Cain and QUT associate professor Gary Mortimer have to say about the $20 billion demerger.

Investing for growth

Coles managing director Steven Cain believes the business is well positioned for success post-demerger, having invested in its supply chain through a partnership with logistics solution provider Witron to develop two automated distribution centres over the next five years.

“The investment we are making in this technology is expected to lower supply chain costs, provide safer working environments and enhance our business competitiveness,” Cain said.

Coles currently holds 31 per cent of the Australian supermarket sector, with rival Woolworths holding 38 per cent and German discount-supermarket Aldi commanding 10 per cent.

Likely to vote in favour

Queensland University of Technology associate professor Gary Mortimer believes that shareholders are likely to vote in favour of the demerger, and by doing so will make Coles an attractive option for outside investors.

“[Coles’] current market price is only about $20 billion… we have to remember that that suite of businesses will include their supermarkets, fuel and convenience offer, and also their chain of liquor stores,” Mortimer told IR.

“If you’re a private equity company or a global player, being able to get into the Australian market and basically take on the role of the second largest food retail in Australia, that’s a very prime target that investors will be looking for.”

The demerger, however, may prove to be a double-edged sword in regards to the supermarkets rivalry with market leader Woolworths.

A more agile Coles may be more flexible – able to react faster to market pressures without the constraints of a larger conglomerate behind them – said Mortimer.

However, the food retail market is highly competitive, with Aldi growing and Kaufland approaching, and a struggling Coles will no longer have the resources or protection of Wesfarmers either.

“While there are positives for spinning the business off, there are also risks,” Mortimer said.

Strategic stake

Wesfarmers managing director Rob Scott noted that, post-demerger, the company would hold a portfolio of cash-generative businesses with leading positions in their respective markets, while chairman Michael Chaney forecasted Wesfarmers would shift investments toward businesses with higher future earnings growth prospects.

Coles contributed just 35 per cent of Wesfarmers’ earnings through the 2018 financial year, despite accounting for 64 per cent of the conglomerate’s employed capital.

“Maintaining a strategic stake in Coles provides an important connection with Wesfarmers to reinforce opportunities to collaborate in the data, digital and loyalty areas,” Scott said.

“Flybuys will be better able to realise this potential as a leading loyalty coming through the ongoing support and investment of both Coles and Wesfarmers and by leveraging the broader networks of the Wesfarmers Group, including existing partnerships with Kmart and Target.”

This story will be updated as more information comes to light.

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