Woolworths ponders future of its pubs business
The market is now buzzing about the future of $4 billion ALH pubs business owned by supermarket chain Woolworths and hotels magnate Bruce Mathieson.
For good reason too.
Woolworths, which has been hit hard by the $3 billion Masters hardware disaster and the failings of once-once powerful supermarkets is now going through some soul searching and looking at all facets of the business.
Woolworths is now streamlining its operations so offloading ALH might just become a priority, according to market speculation.
This could be done in two ways.
First, there’s the opportunity to sell the business to private equity. Indeed, it would be an attractive proposition for private equity because it spits out so much cash. The Woolworths and Bruce Mathieson-linked oubs owner ALE Property Group reported a 1.7 per cent rise in profit at $29.6 million, up from $29.1m last year. ALE is connected to the Bruce Mathieson-backed ALH Group which leases all of ALE’s properties.
But getting private equity could be problematic given that one-third of the pubs in the ALH group are in Queensland which has laws stipulating that standalone stores must be within a 10 kilometre radius of the pub. Anyone lucky enough to have a hotel licence in Queensland can run up to three liquor stores in that local catchment area.
If Woolworths were to sell ALH, it’s risking the 360 liquor retailing outlets in Queensland which are so important for the Woolworths liquor division.
On the other hand, floating ALH would bring in funds and create the refinancing of ALH. At the same time, it would also free up the $3.8 to $ billion in capital that Woolworths has in the business, allowing it to focus the funds on badly needed areas elsewhere.
But untangling ALH could be problematic.
Former Woolworths chief executive Roger Corbett is now ALH chairman and Martin Smith, who runs Woolworth's $8 billion liquor retailing arm now known as Endeavour Drinks Group, is also now a director of ALH.
The untangling of ALH is likely to be the subject of some discussion at the Woolworths C-Level.
by Leon Gettler, August 19th 2016
