With Woolworths announcing plans to either split or sell off its gaming and hotel business, this is likely to lead to upside for current shareholders, says an investment analyst.
In an ASX announcement this week, Woolworths announced an agreement to combine its drinks and hospitality businesses, Endeavour Drinks and ALH Group, into a single entity, which is expected to be referred to as Endeavor Group Limited.
Following the combination, Woolworths said it intends to pursue a “separation of the business through a demerger or other value-accretive alternative”.
Wealth Within chief analyst Dale Gillham said any time a company splits off part of its operations, the share price of the original entity will fall in value as the value of the additional or new entity is now separate and as such has its own value; however, the shareholder will not be disadvantaged as they will now hold share in two companies.
“Splitting a company can often be a very positive move for the original holding company as it can focus on its core business. For example, when Woolworths got rid of Masters, this got rid of an entity that was having a negative effect on the share price of Woolworths,” Mr Gillham explained.
“If Woolworths split off the gaming and hotel business, I think this could not only be again very good for Woolworths longer term but also open up opportunity for shareholders to gain even more value in holding the gaming and hotel entity.
Australians are big gamblers and this part of Woolworths business is very profitable, and so I can only see upside for current shareholders.”
If Woolworths decides to sell rather than split off the gaming and hotel business, this would inject some significant capital into Woolworths, he said, that could fund a war chest in their fight against the foreign supermarket chains that have come and are coming to Australia.
“The impact that Aldi and others is having on the supermarket industry in Australia is significant and this will only increase over time. Therefore, I see Woolworths getting back to focus on its core business is critical to its long-term success,” he said.
By Miranda Brownlee
4 July 2019