Is Wesfarmers Ltd about to sell Kmart and Target?

According to The Australian, Kmart, Target and Officeworks could be on the chopping block at Wesfarmers Ltd's (ASX:WES) head office.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

According to The Australian, Kmart, Target and Officeworks could be on the chopping block at Wesfarmers Ltd's (ASX: WES) head office.

It is rumoured, according to the paper, that Wesfarmers could be actively considering divesting its Kmart, Target and Officeworks businesses into a single company which will be listed on the Australian Stock Exchange.

The company has not released any information to the market to suggest that it plans to make such a large move, with the combined businesses expected to fetch $6 billion. However, it is believed investment bankers have pitched the idea to Wesfarmers.

The idea being that when it is sold as an individual company Wesfarmers would pocket some of the value that would be created from selling the businesses, and it would also avoid a potential fallout from the Australian arrival of e-commerce giant Amazon.

Some would argue that such a deal also offers investors the opportunity to buy a big box retailer without the Coles and Bunnings Warehouse businesses.

However, it may also be strategic for other reasons. For example, Wesfarmers tried to sell Officeworks but failed. And including Kmart would make the sale of Target much more palatable to investors worried about the future of Target.

Is it time to buy Wesfarmers shares?

Corporate activity such as demergers can present opportunities for investors, especially if investors are able to own each of the smaller entities. For example, if Wesfarmers divested Officeworks, chances are, many large institutional investors would be forced to sell it because their mandates would not allow such a small company in their portfolios.

Demergers can also provide a 'recharge' of the corporate batteries and enable the separate companies to focus their efforts on their individual businesses. An example would be BHP Billiton Limited's (ASX: BHP) demerger of South32 Ltd (ASX:S32).

However, in my opinion the real value of Wesfarmers is in its Bunnings Warehouse business. And Coles, of course. But even that is facing strong competition.

At today's prices I think Wesfarmers shares are too expensive to justify a buy rating. Therefore, I'm waiting on the sidelines, for now.

Owen Raszkiewicz owns shares of Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »