Sarah Thompson, 07 September 2015

Analysts and investors are crying out for Woolworths to simplify its business and focus on food and liquor.

Strategic suggestions from the investment community generally involve selling the struggling Masters home improvement division and/or the Big W discount department store chain.

But another division that is expected to come under review is Woolworths’ petrol joint venture with Caltex.

It is one of the more saleable non-core divisions, given Caltex is an obvious potential suitor, while a spin-off to shareholders or an initial public offering would also be in the mix.

New Woolworths chairman Gordon Cairns would be watching the progress of Viva Energy with interest.

The former Shell Australia refining and marketing business is eyeing an ASX listing this year, as revealed by Street Talk, with Bank of America Merrill Lynch and Deustche Bank on board as joint lead managers on the potential $1 billion-plus float.

And Woolworths has form in spinning off assets. It demerged $1.4 billion worth of Australian and New Zealand property into Shopping Centres Australasia Property Group in 2012.

Meanwhile, UBS analyst Cameron Hardie reckons Caltex has around $600 million up its sleeve for acquisitions or capital management, although the company may run into competition issues if it wanted to buy out Woolworths.

Woolworths has Citi in its camp and has already received some interest in Masters, as revealed by Street Talk.

Only 1 per cent of Woolworths’ earnings before interest and tax comes from the fuel business, but it is used to drive sales in the grocery business.

If the petrol division was spun-off, Woolworths may be able to retain supermarket bundle agreements with the new owner.

However, top of Cairns’ to-do list is to find a new chief executive to replace the outgoing Grant O’Brien.

Credit Suisse analyst Grant Saligari and his team see Cairns as good with people and innovation but not necessarily for “hard-nosed portfolio decisions.”\

This could mean decisions around the future of the fuel JV, Masters and Big W are more likely to be driven by the new CEO than Cairns.

Extracted in full from the Australian Financial Review.