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The next catalyst for Woolworths Group Ltd’s (ASX:WOW) share price could come a little later this month

The share price of Woolworths Group Ltd (ASX: WOW) is hovering around a three-and-a-half-year high but it could push higher later this month depending on how the Viva Energy Group Limited initial public offer performs.

The stock is trading 0.1% higher at $30.63 at the time of writing, which takes its gains over the past year to 16% when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is up 7%.

It is fair to assume that management is watching the Viva Energy IPO unfold with eager anticipation as Woolworths mulls the future of its petrol station division following the failed sale of the business to BP last month after the competition watchdog blocked the deal.

Woolies is unlikely to want to keep its petrol business now that it has gone this far down the demerger track, according to the Australian Financial Review. I agree as I think it is only a matter of time before it rids itself of the division.

The only question is how, and an IPO of its petrol stations is certainly one option that the group is believed to be considering.

Viva Energy, which owns Shell stations and is the second largest fuel refiner in the country, will complete its bookbuild process next week. This will determine the final price of the IPO before the stock starts trading on the stock exchange towards the end of this month.

The IPO is mooted to fetch between $1.5 billion and $2 billion, but I think the more significant thing to watch for is how shares in Viva Energy perform once it has listed.

A strong jump in Viva Energy’s share price post listing will go a very long way in driving interest in Woolies’ petrol division and could even allow the supermarket giant to command a better price for its spin-off.

One of the criticisms against Viva Energy is the fact that its IPO is priced at a pretty skinny discount to its only other listed rival Caltex Australia Limited (ASX: CTX).

But if Viva Energy’s share price slumps below its IPO price in the first few trading days, that will have quite the opposite effect on sentiment towards Woolies’ spin-off. Just look at the contention created by the poor start to trade for Marley Spoon AG (ASX: MMM).

Of course, it’s not only Woolies that’s looking at creating shareholder value through a divestment. Its archrival Wesfarmers Ltd (ASX: WES) has already committed to a Coles IPO.

The interesting thing is, I suspect when Coles becomes a separately listed entity, it will also look at selling some assets to fill its war chest to fight for market share on the supermarket battlefront.

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Motley Fool contributor Brendon Lau owns shares of Caltex Australia Ltd. The Motley Fool Australia owns shares of and has recommended 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 Scott Phillips.

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