Wesfarmers Ltd’s (ASX: WES) share price has been in the red on Monday, down 54 cents or 1.08% to $49.46 in late afternoon trade, after providing an update on the Coles supermarket demerger.
Wesfarmers says it will keep a 15% stake in Coles following the demerger and listing of the supermarket chain, which is to be completed by November.
Investors were also told on Monday the business would follow a similar dividend strategy to its former parent. Coles will pay 80 to 90% of profits to shareholders as a dividend following its spinoff from parent Wesfarmers, the conglomerate says.
Wesfarmers stake will give it one seat on the newly created board of Coles and it will also hold 50% of loyalty program Flybuys.
Coles will have net debt of $2 billion, which will give it a strong credit rating and position the group as a pure food and liquor player in the Australian retail market, Wesfarmers managing director Rob Scott said on Monday.
“We’re confident that we’re setting Coles up for future success,” Mr Scott said on the media call.
The Perth-based conglomerate this year announced its plans to spin off Coles and list it on the ASX, initially planning to keep up to 20%.
The demerger will be affected by a scheme of arrangement, under which eligible shareholders will receive one Coles share for every Wesfarmers share held.
Wesfarmers said it expected that dividends of the two businesses combined would be “broadly equivalent” to dividends that would have been paid had Wesfarmers not gone ahead with the demerger.
James Graham will be chairman of the new entity, while David Cheesewright, Jacqueline Chow and Richard Freudenstein will be non-executive directors.
The Wesfarmers share price has gained 24.1% in the last 12 months, while major competitor Woolworths Group Ltd (ASX: WOW) shares have climbed 17.26% in the period.