Yahoo Finance Did Woolworths exit gambling to beat foreign invaders?
Earlier this week, Woolworths announced it would pull the plug on its gaming and hotel businesses in either a spin-off or a sale next year.
In a statement to the ASX, Woolworths said it would package together its interest in the Endeavour Drinks and ALH Group businesses, ahead of either a de-merger or other “value accretive alternatives”.
Woolies said the move would “deliver benefits from a simplified organisational structure” and a greater focus on its core food and retail businesses.
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But some experts think it’s a smart play for the supermarket to inject itself with more capital and fight against foreign supermarket chains, Aldi and Kaufland.
Dale Gillham, chief analyst at Wealth Within, told Yahoo Finance that whether Woolies decides to sell its gaming and hotel business or spin it off, it’s a good move.
“Splitting a company can often be a very positive move for the original holding company as it can focus on its core business,” he said.
“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.”
What happens if Woolworths decides to split from its pubs and pokies businesses?
If Woolies chooses to split off their gaming and hotel businesses, it could be good for the supermarket juggernaut in the long-term and it could also open up opportunities for shareholders to gain more value in holding the separate entity.
Though Woolies’ share price would fall in value from a split because the new gaming and hotel entity is separate (and has its own value), shareholders won’t be disadvantaged because they’d hold a share in both companies.
“This part of Woolworths’ business is very profitable, and so I can only see upside for current shareholders,” Gillham said.
What happens if Woolworths decides to sell its pubs and pokies businesses?
If Woolies chooses to sell its gaming and hotel business, Gillham says it’s going to inject some significant capital into the business.
That capital, according to Gillham, “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 are having on the supermarket industry in Australia is significant and this will only increase over time,” he told Yahoo Finance.
“Therefore I see Woolworths getting back to focus on its core business is critical to its long term success.”
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