Well, a 16-year partnership between two of the largest and most famous companies on the S&P/ASX 200 Index (ASX: XJO) seems to have finally come to an end this week. We are, of course, talking about Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL) shares.
The partnership between these two giants of the ASX (and the Australian retail landscape) began back in 2007. That was when Wesfarmers sensationally acquired the Coles business in its entirety, paying $22 billion for the business in what was one of the largest corporate takeovers in history at the time.
Wesfarmers ran Coles out of its own stable for the next 11 years before announcing a spinoff in 2018. Five years ago, Coles was floated under its own steam on the ASX, with Wesfarmers shareholders receiving one share of the newly-listed Coles for every share owned at the time.
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Wesfarmers shares and their history with Coles
However, under the deal, Wesfarmers retained a significant portion of Coles shares, worth around 15% of the company.
Over the years, Wesfarmers has steadily sold off its remaining Coles shares though. By the end of last week, the company had just 2.8% of Coles remaining on its books.
But Wesfarmers has cashed out of Coles completely at last. A brief statement on its website confirms the sale, with no further detail.
Although, according to reporting in Reuters this week, the sale figure is placed at $18.50 per share, which would mean the sale had a value of around $688 million.
So now that Wesfarmers has closed this very long chapter in its history, what might the conglomerate have in mind for this cash windfall?
Wesfarmers is a company with a long pattern of mergers, acquisitions and spinoffs. It was only in 2021 that it made its largest recent acquisition, taking total control of pharmacy operator API, which is well known for its Priceline pharmacy chain.
Before that, the company made a venture into the lithium industry with its acquisition of Kidman Resources in 2019. It has since expanded its lithium exposure with its Covalent Lithium business and flagship Mt Holland Project.
What will the conglomerate spend its Coles cash on?
But Wesfarmers has made no official indications of what its next acquisition might be. In its most recent earnings report from February, the company stated that its outlook involved the following:
The Group maintains its long-term focus and continues to invest in strengthening its existing operations, renewing the portfolio and developing platforms for long-term growth.
Recent investments enable Wesfarmers to take advantage of growing consumer and industrial demand in the health and critical minerals sectors.
It's possible Wesfarmers will use the proceeds from its Coles sale to make further investments into its online-facing OneDigital division. This includes Wesfarmers' catch.com.au business, as well as the OnePass and OneData programs. This division of Wesfarmers is growing rapidly, with more than 1.5 million digital interactions per month reported in February, up from half a million a month in FY 2019.
But the division is still losing Wesfarmers money on the bottom line, contributing an earnings loss of $108 million for the half-year ending 31 December 2022.
The company could also have plans to use the proceeds to invest back into its growing Health division, or else expand further into lithium or battery technologies, as per its outlook discussed above.
Whatever Wesfarmers has planned for its extra cash, it's certainly a big week for both Coles and Wesfarmers as one of the most significant corporate partnerships in Australian history closes its final chapter.
