According to a document in the Australian Financial Review. Woolworths is finalising documents that will be circulated to shareholders ahead of the company’s shareholder meeting on 16 December.
In these reports, Woolworths is outlining the benefits of merging its Endeavour Drinks division with the company’s hotel and pokies business, ALH Hotels.
Woolworth’s plan will be to eventually spin-off its entire Drinks business as a separate ASX-listed company.
But according to the report, many investors are worried about the cost of such an operation, estimated to come out at around $275 million – the new company will have to have its own management team, board and maybe even new offices separate from Woolworths.
Woolworths’ drinks divisions are heavily integrated within the Woolworths supply network, with many BWS stores ‘bolted-on’ to existing Woolworths’ supermarkets, with shared docking/loading facilities.
How the newly separated companies will work together post-demerger will have to be formalised by a long series of partnerships and agreements that will encompass shared facilities, marketing and the Woolworths Rewards programs, amongst other considerations.
Woolworths’ management is bullish on the proposal, however, and is confident any incurred costs from the divorce will be outweighed by the benefits.
Woolworths chief operating officer David Marr told the AFR that he thinks “it will be a great outcome for both businesses ultimately.”
He added:
With food it gives tremendous simplicity to its model, focusing on food and everyday needs, and with Endeavour it provides a pure focus on drinks and hospitality and direct access to capital, which is important to help deliver its growth potential… Most shareholders understand the logic of the benefits of simplicity and they like this idea of two business focused on their core. They’ve generally been very supportive so far.
We will have to wait until December to find out if Woolworths’ shareholders agree.
