Woolworths to Focus on Core Business, Spinning Off Drinks and Gambling

The Australians gambling industry is big. Australians gamble away $24 billion a year in losses. Woolworths alone contributes to about $1.5 billion of this through its 12,000 gaming machines in 286 hotels across Australia.

Woolworths, the third biggest gaming business in Australia has decided to diversify, its drinks, hospitality and gaming will be stocked out to the Endeavour Drinks and ALH Group businesses in a bid to demerge or “other value accretive alternatives”, such as a trade sale, in 2020. This spin off worth $11b comes as an announcement, rumored to be following its dwindling reputation in the gambling industry.

The supermarket giant claims otherwise. Woolworths said the separation will facilitate a simplified organizational structure and greater focus on its core food and retail businesses. The partnership of Woolworths and ALH owns 12,000 gaming machine licenses.

The Endeavour Drinks and ALH merger will be the country’s largest standalone united alcohol and hospitality business, with sales of around $10 billion and pre-tax earnings of $1 billion.

This move could be a significant global decision. Woolworths will, however, not be affected apart from reduced scale and diversity. Its creditworthiness will remain untouched.

“In our view, the group’s Australian and New Zealand food business remains strong, although the separation will reduce the group’s scale and diversity,” Standard and Poor’s analysts Sam Playfair and Craig Parker wrote in a note to clients.

Investors showed their support for the demerging announcement, with Woolworths shares jumping 3.3 per cent to $34 in early trade (11am AEDT).