Yesterday's announcement that the New Zealand Commerce Commission has given its approval for the go ahead of Insurance Australia Group Limited's (ASX: IAG) acquisition of Lumley Insurance, owned by Wesfarmers Ltd (ASX: WES) is a clear positive for both companies.
IAG and Wesfarmers are now just awaiting clearance from the Australian Prudential Regulatory Authority, the Federal Treasurer and the Reserve Bank of New Zealand. All going to plan the sale should be completed by the end of June 2014.
Unlike some of its blue-chip peers, including Woolworths Limited (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA), both of which are trading at fresh all-time highs, Wesfarmers is yet to reach its all-time high share price that was set back in 2007, despite announcing these profitable sales of insurance assets.
While the share price may not have reached new all-time highs just yet, here are three important reasons to stick with your investment in Wesfarmers.
1) Management is actively maximising value for shareholders. The recent assets sales which include the sale of its insurance underwriting operations to IAG for $1.8 billion and the sale of its insurance broking and premium funding business to Arthur J. Gallagher for $1 billion are clear evidence that management is focussed on generating returns for shareholders.
2) Wesfarmers' conglomerate structure offers investors part ownership in a diversified range of operating businesses. This is a strategic advantage for the company and its shareholders as it limits exposure to any single industry. Currently, the solid results being achieved in the retail division are able to offset the soft results from the coal division.
3) Cash Hoard. The value created by Wesfarmers over the years as it has built small business units such as Bunnings into "cash fountains" is highly commendable. Recent asset sales have added significantly to cash balances and debt capacity at Wesfarmers. Investors shouldn't be surprised if another company transforming acquisition occurs in the not too distant future.
