BWS Woolworths demerger

Woolworths outlines its plans for Endeavour following demerger

July 4, 2019
By Alana House

Woolworths has reassured investors and suppliers following its announcement that it will spin off its liquor and hospitality businesses into a new company called Endeavour Group.

Endeavour Drinks and ALH will combine to form Endeavour Group prior to it either being spun off to shareholders or sold to a new owner in 2020.

The merging of Endeavour Drinks and ALH will create Australia’s largest integrated drinks and hospitality business, with sales of approximately $10 billion and $1 billion EBITDA.

Woolworths said it expects Endeavour Group to be an ASX100 company following the separation.

Endeavour MD Steven Donohue said it would be “business as usual” for the next few months while “we work out what the proposed merger between Endeavour and ALH, and the subsequent separation from the Woolworths Group will look like”, and ask for shareholder approval.

“This is a really exciting time to be part of the drinks business,” he added. “The changes ahead will allow Endeavour to better respond to growth opportunities, and continue to build and develop our dedicated and passionate team and our strong relationship with all our suppliers.”

SMH Business columnist Elizabeth Knight described the ASX announcement by Woolworths as: “The largest and most transformative transaction undertaken by the group in its 94-year history.”

“But shareholders will be surprised by the decision to get out of bottle shops – an area in which it has been very successful and has dominated its main rival, Coles,” she added.

“This will raise questions in some quarters about whether Woolworths is effectively throwing out the baby with the bathwater.”

However, Woolworths Group Chairman Gordon Cairns said: “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.

“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.”

The new look Endeavour Group

Woolworths Group said Endeavour Group will have leading market positions, strong cash flow to fund investments in growth and an attractive and resilient revenue and earnings profile.

It will comprise highly integrated store-based and online offerings, with more than 1500 BWS and Dan Murphy’s retail drinks outlets and 327 ALH hotels.

In the loyalty space, Dan Murphy’s currently has 3.5million My Dan Murphy’s members.

Dan Murphy's Endeavour Drinks Group Woolworths demerger

ALH retail drinks outlets currently comprise approximately 35% of Woolworths Group retail drinks sales with 86 Dan Murphy’s and 512 BWS stores owned by ALH at the end of March 2019.

Other businesses to be included in the merger include Endeavour Drinks’ own and exclusive brands business, Pinnacle Drinks; Langton’s, a fine wine auction and retail business; Cellarmasters, a wine subscription
business; and an 8.7% stake in ALE Property Group.

Among the priorities for the Endeavour Group moving forward will be:

  • Simplifying into a more customer-centric operating model to create a leaner and more customer focused business across Endeavour Drinks and ALH.
  • Further developing its retail drinks and hospitality network to capitalise on network growth opportunities, ramp-up its renewal program and continue new store openings.
  • Leverage the store network and digital capabilities to increase online penetration and continue to rapidly expand drive up and last-mile delivery and use rewards to drive personalisation
  • Curate range for local customers and selectively build out the portfolio of exclusive Pinnacle brands.
  • Unlock the property development potential of its existing real estate and develop key existing venues into large-scale mixed use and accommodation properties.

“There are lots of opportunities in the drinks and hospitality network, Woolworths chief executive Brad Banducci said. “We have not invested as we should have in the past few years in Endeavour Drinks in the digital space, for example. E-commerce and home delivery are also very important and are growing.”

While the new company will be separated, it will keep a relationship with Woolworths in many areas, including loyalty schemes and infrastructure.

Inside the merger implementation

Bruce Mathieson Group, which owns 25% of ALH, has agreed to swap its interest in ALH (including all contractual entitlements) for a 14.6% stake in the combined Endeavour Group and will maintain Board representation in the event that a demerger becomes effective.

Poker machines ALH Woolworths demerger

Woolworths has been under increasing pressure to distance itself from ALH, which is Australia’s largest poker machine operator.

The NSW Independent Liquor & Gaming Authority is currently considering a disciplinary complaint alleging that two ALH-run hotels on the North Coast illegally gave free alcohol to gaming machine players to keep them gambling.

Liquor & Gaming NSW lodged the complaint against Westower Tavern at West Ballina and South Tweed Tavern at South Tweed Heads.

ALH Group owns 12,000 poker machines across 330 pubs throughout Australia, making it the largest pokies business in Australia.

Bruce Matheison told the SMH the reputational risk around poker machines was a “major influence” behind Woolworths’ decision.

“Realistically, that was a major thing because there are people who don’t like poker machines,” Mathieson said.

“You weigh up everything in your business. It was certainly, I think, part of their reasoning… but I don’t think it was the be all and end all.”

He added to The Australian that he would now be free to “turbocharge” the growth of Endeavour.

“It will be a fabulous business and it is a great deal for me and my family. And it has been a fabulous partnership with Woolworths. There really is a lot of growth in the business, and we can really concentrate on that.

“There really is a lot of potential, we think.

“We love the industry.

“We’ve been concentrating on the retail and liquor side of things for a long time, probably the last 10-12 years, and now it is time to concentrate on the other side. We can look at refurbishing and extending the pubs and potentially developing them as well.”

Woolworths Group said it expects to retain a minority holding in a demerged Endeavour Group reflecting the importance of the ongoing partnership.

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