The Woolworths Group Ltd (ASX: WOW) share price is on the move on Monday morning.
At the time of writing, the retail conglomerate's shares are up 1.5% to $40.00.
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Why is the Woolworths share price rising?
Investors have been buying the company's shares following the release of an update on its Endeavour Group plans.
According to the release, the Woolworths board has determined that a demerger is likely to enhance shareholder value over time and is preferable to other available options.
The company notes that the proposed demerger is the final step in a process that involves the combination of Woolworths Group's drinks and hospitality businesses to form Endeavour Group through a restructure of Endeavour Drinks and subsequent merger with ALH Group.
What now?
If approved and implemented, the demerger will create two independent and leading ASX-listed companies.
Woolworths Group shareholders will retain all their existing Woolworths Group shares, with eligible shareholders receiving one new Endeavour Group share for every Woolworths Group share held at the demerger record date.
The company and its long-term joint venture partner, Bruce Mathieson Group, will each hold a 14.6% interest in Endeavour Group at the time of the demerger.
Woolworths Group's directors are unanimously recommending that shareholders vote in favour of the proposed demerger resolutions. All directors intend to vote their own shares in favour of the demerger. An Independent Expert, Grant Samuel, has also concluded that the demerger is in the best interests of shareholders.
The company's Chairman, Gordon Cairns, said: "The Woolworths Group Board believes that a demerger of Endeavour Group will enhance shareholder value and it will create two leading ASX-listed companies. We believe both businesses, post demerger, have strong future prospects and will benefit from greater simplicity, focus and ongoing partnership."
Woolworths also revealed that, subject to trading conditions and Board approval, $1.6 billion to $2 billion could be returned to shareholders if the demerger goes ahead. Further updates on this will be provided when a decision has been made.
What will Endeavour Group look like?
The release advises that the demerger is intended to enable Endeavour Group to realise its full potential with a clear purpose across Retail, Hotels and its broader business.
Post demerger, Endeavour Group will have an independent business strategy and a broad mandate for growth. It will also have the capacity and access to capital to pursue a range of investment and growth initiatives.
On a pro forma basis, Endeavour Group reported FY 2020 sales of $10.6 billion, EBIT of $693 2 million, and net profit before significant items of $328 million.
It has committed bank facilities of $2.5 billion with net debt (before lease liabilities) of $1.4 billion to $1.5 billion expected at the time of demerger. The bank facilities will be used to repay inter-company borrowings with Woolworths Group, and provide sufficient liquidity to support Endeavour Group's funding requirements.
Like Woolworths, Endeavour Group will be sharing its profits with shareholders. It intends to follow Woolworths Group's long established dividend policy which is initially expected to deliver a payout ratio of 70% to 75% of profit.
Endeavour Group CEO, Steve Donohue, said: "We believe that Endeavour Group's long-term prospects are strong. We have assembled an experienced and proven team, have a leading store network, digital presence, and market position. Through living our purpose of creating a more sociable future together we see many opportunities to grow the business and create value for our shareholders."
