Wesfarmers Ltd (ASX:WES) agrees to sell its Bengalla stake for $860 million

The Wesfarmers Ltd (ASX: WES) share price has pushed higher today after the conglomerate announced plans to offload its stake in the Bengalla joint venture to New Hope Corporation (ASX: NHC).

At the time of writing Wesfarmers’ shares are up 1.5% to $50.73 and New Hope’s shares are 6.5% higher at $3.40.

What have the two parties agreed?

According to today’s release, Wesfarmers will sell its 40% stake in the Bengalla coal project to its joint venture partner for a total of $860 million.

This will lift New Hope’s interest in the project to 80%, with Taipower and Mitsui each holding 10% stakes.

Wesfarmers’ management has advised that on successful completion of the transaction, it expects to report a pre-tax profit on sale of approximately $670 million to $680 million subject to completion adjustments. It will continue to benefit from earnings and cashflow generated from its interest in Bengalla until the transaction completes.

The transaction is subject to regulatory approval and pre-emption rights under the Bengalla Joint Venture Deed. Though Wesfarmers appears confident that there won’t be any issues here and expects the sale to close in the fourth quarter of 2018.

This will be the second coal mine sale of the year for Wesfarmers following the sale of the Curragh coal mine to Coronado Coal in March. Management has advised that this sale will finalise the review of the Wesfarmers resources businesses initiated in 2016.

Should you invest?

I think this is a great deal for both parties and I can fully understand why both sets of shares are climbing higher today despite the market sinking lower.

However, I think Wesfarmers’ shares are fully valued now and I wouldn’t be a buyer just yet. Not unless the conglomerate puts these funds to use and purchases some growth assets to complement the Bunnings business.

Instead of Wesfarmers I would be buying this growing dividend share.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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