The shares of Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES) will be on watch on Wednesday after the release of an announcement concerning both companies following the market close.
What was announced?
This afternoon Wesfarmers announced that it has entered into an underwriting agreement with two lead managers to sell 4.9% of the issued capital of Coles.
Following the sale process, the conglomerate will retain a minority interest of 10.1% in the supermarket giant. It will also retain its right to nominate a director on the Coles board, maintaining the ongoing relationship between the two companies since the demerger in November 2018.
The latter is due to its relationship deed which was agreed with Coles at the time of the demerger. Under its terms, Wesfarmers has the right to nominate a director to the Coles board for as long as it retains an interest of at least 10%.
What is the rationale for the sale?
Wesfarmers' managing director, Rob Scott, believes the partial sale of its stake is in the best interests of shareholders. He notes that it will crystallise a strong return for shareholders, while also allowing their continued strategic alignment and collaboration in relation to mutually beneficial growth initiatives.
Mr Scott said: "We believe this level of divestment is in the best interests of our shareholders and consistent with our objectives at the time of the demerger, which included demonstrating continued confidence in Coles' future as a stand-alone listed company."
"We have been pleased with the performance of Coles as an independently listed entity and believe it is an appropriate time to realise value for our shareholders while retaining a meaningful interest and ongoing connection with Coles, including representation on its Board and through our flybuys joint venture," he concluded.
Wesfarmers has not provided any details regarding the price received per share or the pre-tax profit on sale. This will be disclosed when the sale proceeds are known.
Based on today's close price, this 4.9% stake has a market value of approximately $1.1 billion.
