Woolworths Group has announced it will combine its liquor and hospitality businesses - Endeavour Drinks and ALH Group - into a new company called Endeavour Group Limited and demerge it 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.
Endeavour Group will either be spun off to shareholders or sold to a new owner.
Woolworths has been under increasing pressure to distance itself from ALH, which is Australia's largest poker machine operator.
Last month Liquor & Gaming NSW lodged complaints against two ALH hotels - Westower Tavern at West Ballina and South Tweed Tavern at South Tweed Heads – following an investigation into 50 ALH venues.
It also follows Coles inking a deal with KKR’s Australian Venue Co to manage its Spirit Hotels group.
The new business, called Queensland Venue Co, sees Coles take the profits from the bottle shops, while AVC takes the profits from the hotels and gaming operations.
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."
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.”
Bruce Mathieson Senior of Bruce Mathieson Group (BMG), Woolworths Group’s joint venture partner in ALH, said: “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.
"This transaction is the natural evolution of the partnership and will allow Endeavour Drinks and ALH to reach their full potential. We look forward to continuing the partnership for many years to come.”
Woolworths Group said the separation would allow it to benefit from a simplified organisational structure, a greater focus on its core food and everyday needs markets and opportunities to "continue to build out the Woolworths Group retail ecosystem".
Woolworths Group CEO Brad Banducci noted: “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.
"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 Group through a combination and subsequent separation of Endeavour Group.”
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.
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