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Wesfarmers (ASX: WES) is cashing in on the phenomenal rise of retailer Coles Group (ASX:COL) since it demerged 15 months ago.
Coles shares have risen by more than a third since then, leading Wesfarmers to announce it has agreed to sell 4.95 per cent of issued shares which at today's closing price would be worth around $1.1 billion.
The transaction means Wesfarmers will retain a minority interest of 10.1 per cent in the chain, which today reported a rise in profit from ordinary activities for the first half of FY20.
The result was however tainted by the finding some staff had been underpaid by $20 million; a figure that whilst serious pales in comparison to the estimated $300 million competitor Woolworths Group (ASX: WOW) had underpaid its employees.
The 10.1 per cent stake still makes Wesfarmers the second-largest shareholder, with the right to nominate a director on the Coles board as a condition of the pair's relationship deed at the time of the demerger.
The largest shareholding is owned by HSBC Custody Nominees (Australia) Limited with a 20.13 per cent stake, according to last year's Annual Report.
Wesfarmers managing director Rob Scott says the partial sale of the Coles shareholding will crystallise a strong return for shareholders while enabling continued strategic alignment and collaboration between the two companies in relation to mutually beneficial growth initiatives.
"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," says Scott.
"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."
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