Woolworths to combine, then spin off, Endeavour and ALH

SAMANTHA BAILEY
JULY 3, 2019
The Australian

Woolworths will combine its alcohol and pubs businesses and then spin them off, possibly through a demerger.

The supermarket giant said that it will combine its Endeavour Drinks with its hospitality business ALH and then pursue a “separation” of the new company, through a demerger or “other value-accretive alternative”.

Apart from pubs and poker machines, the new combined company will have hundreds of BWS and Dan Murphy’s liquor stories.

“The board believes that a merger of Endeavour Drinks and ALH followed by a separation, is in shareholders’ best interests and will benefit customers and team members of both groups,” chairman Gordon Cairns said in a statement.

“The decision has been taken after consideration of the future prospects of both businesses and how they can be best realised. It reflects the board’s focus on maximising long-term shareholder value.”

Woolworths says the merger of Endeavour Drinks and ALH will create Australia’s largest integrated drinks and hospitality business, with sales of about $10 billion and EBITDA1 of $1 billion. Its stores will include over 1500 BWS and Dan Murphy’s retail drinks outlets and 327 ALH hotels.

Bruce Mathieson Group, which owns a 25 per cent stake in ALH as part its joint venture with Woolworths, has agreed to swap its interest in ALH for a 14.6 per cent stake in the combined Endeavour Group and will maintain board representation if a demerger becomes effective.

Woolworths would retain a minority holding in a demerged Endeavour Group.

“Woolworths Group and BMG have enjoyed a long and successful partnership in ALH since 2004 which has created significant value for both sets of shareholders,” said Bruce Mathieson Snr, of Bruce Mathieson Group.

“This transaction is the natural evolution of the partnership and will allow Endeavour Drinks and ALH to reach their full potential.”

Woolworths said the separation of the drinks and pubs business would allow Woolworths to benefit from a more simplified structure, and allow it to focus more on its core food and “everyday needs” markets.

It would also allow Endeavour Group to simplify is business with greater access to capital to pursue investment and growth, while retaining the benefits from a strong partnership with Woolworths.

“Over the past three years we have progressively moved from a period of fixing the basics as part of our turnaround to investing for the future as part of our transformation,” chief executive Brad Banducci said.

“As we look to build customer differentiation in all of our businesses, and prepare for an agile and digitally-enabled future, we have decided to simplify Woolworths through a combination and subsequent separation of Endeavour Group.”

The merger of Endeavour Drinks and ALH is expected to be completed in the second half of calendar year 2019, subject to final board approval, third party consents, regulatory approval and completion of the restructure.

Woolworths expects to seek shareholder approval at its annual general meeting later this year.

A subsequent demerger or alternative transaction is currently expected to complete in calendar year 2020.

As part of the business changes, Woolworths CFO David Marr will move to the new role of chief operating officer.

Stephen Harrison, who is currently the company’s Australian food finance director will take over as Woolworths CFO from August 1.