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Australian corporation Wesfarmers demerger of its supermarket division, Coles has made a solid trading debut, valued at $18 billion on its first day trading on the ASX on Wednesday.
Shares of Coles Group Ltd started trading on the Australian Securities Exchange(ASX) on Wednesday after the Supreme Court of Western Australia approved a Wesfarmers Ltd demerger.
This comes after the supermarket giant, Coles posted its fastest quarterly sales growth in nearly three years in October, fuelled by its launch of the mini toy campaign.
Shares started trading at 12.49 beating analysts’ expectations, while shares in former parent company Wesfarmers dropped 28.8% to $31.40 per share.
After the demerger, research shows Wesfarmers would earn nearly 60% less revenue, but could generate about 50 % more return on capital.
According to the company, the demerger of the supermarket chain is part of Wesfarmers' major portfolio revamp. Wesfarmers stated it will now set its focus on its domestic hardware and department stores.
Demergering Coles from Wesfarmers
Wesfarmers still owns the Bunnings Warehouse business, along with Kmart, Target and Officeworks, and it was announced in October that Wesfarmers would still retain 15% of Coles and 50 % of flybuys.
The Wesfarmers board consulted with analysts, who concluded to find the demerger was the best thing moving forward.
Wesfarmers Chairman Michael Chaney said Wesfarmers directors unanimously recommended shareholders vote in favour of the proposed demerger resolutions.
“Demerging Coles enhances Wesfarmers’ prospects of delivering satisfactory returns to shareholders by shifting our investment weighting and focus towards businesses with higher future earnings growth prospects,” Mr Chaney said.
“Following a successful turnaround since it was acquired by Wesfarmers in 2007, Coles is once again a leading Australian retailer, well positioned to grow as a defensive business with strong investment characteristics.” Mr Chaney said.
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