Woolworths share price: Where next as Demerger looms?

Woolworths (ticker: WOW) on Monday announced that it had entered the third and final stage of its Endeavour Drinks transformation program.

Today’s announcement builds on a process started back in 2019, which started with the group’s drinks and hospitality businesses restructured to its own legal entity: Endeavour Group. The aim behind the demerger was always a simple one: Create a more focused, independent business that was/ will be well positioned for future growth.

In business terms, Woolworth’s Board believes this decision is ‘the most value accretive path to separation for Shareholders.'

Where next for shareholders?

Woolworths management noted that shareholders currently do not need to take any action bar potentially considering the just-released documentation associated with the demerger.

Moving forward, the Board said it 'recommends unanimously that you [the shareholder] vote in favour of the Meetings Resolutions' related to the demerger, set to be discussed at the upcoming general meeting.

Ultimately, the demerger will not impact the number of Woolworths shares that investors hold in the company. 'Shareholders will retain all Woolworths Shares they own at the Demerger Record date.'

Eligible Woolworths shareholders will however receive one Endeavour Group share for every Woolworths share held on the demerger date.

The formal separation of Woolworths and Endeavour is set to take place on 28 June, with the final steps of the process anticipated to be complete by 1 July.

Endearing Fundamentals?

Covid placed significant impact on Woolworths’ hotels business, with lockdowns and closures eating into earnings in 2020.

Despite that, the Endeavour Group continued to operate at a significant scale, with the company reporting FY20 pro-forma revenues of $10.6 billion. Earnings (EBIT) were $693 million, while the company also boasts 5.1 million My Dan members.

Looking at the Group’s physical footprint, there are 246 Dan Murphy's stores across Australia, 1,284 BWS stores, and 332 hotel venues.

In terms of market capitalisation, management expects Endeavour to be within the top 50 ASX-listed companies following the spin-off.

Woolworths will maintain a 14.6% stake in Endeavour, following the demerger, though the stake will be non-controlling.

Woolworths Share Price

The market responded positively to the demerger update, with the Woolworths share price up over 2% within the first hour of trade, last trading just above the $40 handle. The broader market was also up, with the ASX 200 gaining over 1% before noon.

This caps off a stable period for the blue-chip, with WOW up around 7% in the last six months.

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