Normally an update on a desired move like Wesfarmers spin off of its Coles supermarket business should have helped boost the share price yesterday.
But in yesterday’s weak trading session, made worse by more whining and moaning tweets from President Donald Trump about Iran, Russia and the FBI investigation, the local market fell out of bed, losing nearly 1%.
As a result Wesfarmers’ shares lost 1.2% to $49.35 – not the end of the road, but perhaps a sign that certainty and positive sentiment are going to be in short supply from now on.
Wesfarmers said it has named long time director and investment banker James Graham to become chairman of Coles when the supermarket separated from the conglomerate and launched as an independent company later this year. Following his appointment as Chairman-elect of Coles, Mr Graham has stepped down as a non-executive director of Wesfarmers.
The company also confirmed it would retain a 15% stake Coles, after earlier flagging it would retain up to 20%, and that it expected the demerger to be completed in November 2018, shareholder approval pending.
Wesfarmers said it will also retain its existing ownership of 50% of flybuys "to support continued development of the loyalty program and better leverage the combined Coles and Wesfarmers digital and data ecosystem to improve their respective customer offers.”
The other non-executive directors proposed are David Cheesewright, Jacqueline Chow and Richard Freudenstein. Mr Cheesewright will be the Wesfarmers nominee on the Coles Board in recognition of its retention of a shareholding interest. Mr Cheesewright is also to be appointed an advisor to the Wesfarmers Board.
UK businessman and retail executive, Archie Norman will step down as Deputy Chairman of Coles and advisor to the Wesfarmers Board to become an advisor to the new Coles Board, continuing his strategic contribution to the business.
Wesfarmers Managing Director Rob Scott said the demerger represented a significant repositioning of the Group’s portfolio to set up both Wesfarmers and Coles for success over the next decade.
“The demerger will reposition the Group’s portfolio to target a higher capital weighting towards businesses with strong future earnings growth prospects,” Mr Scott said. “Post-demerger, Wesfarmers will have a portfolio of cash generative businesses, with strong returns on capital, good momentum and leading positions in their respective markets.”
“Wesfarmers is committed to demerging Coles with a strong balance sheet. Coles is expected to have net debt of approximately $2.0 billion to support a strong Baa1 and/or BBB+ credit rating.
"Combined with a favourable lease commitment profile, this will provide good access to capital and balance sheet capacity to support strategic flexibility, dividends and investment plans,” Mr Scott said.
Wesfarmers said Coles’ approach to dividends will be determined by the Coles Board at its discretion and may change over time.
But to start with “Coles currently intends to follow Wesfarmers’ long-established dividend policy which has regard to current earnings and cash flows, available franking credits, future cash flow requirements and targeted credit metrics,” according to yesterday’s statement from Wesfarmers.
"This approach is expected to deliver a dividend payout ratio ranging from 80 per cent to 90 per cent while enabling Coles to retain strategic flexibility.”
Wesfarmers said its dividend policy will remain unchanged following the demerger.
"It is anticipated that, taken together, the dividends to be declared by Coles and Wesfarmers for the year ending 30 June 2019 will be broadly equivalent to the dividends that Wesfarmers would otherwise have declared if the demerger did not proceed (including in respect of franking),” Wesfarmers said in yesterday’s statement.
