Demerger relief for Woolies but is it still a sell?

Co-founder of the Switzer Report
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Woolworths CEO Brad Banducci is breathing a sigh of relief.

He is getting rid of Woolworth’s problem child – its exposure to pokies and alcohol – and the market has reacted predictably to news of the demerger and taken its share price higher.  Woolworths closed on Friday at $34.31, up 4.1% since the announcement on Wednesday.

But before anyone gets too carried away about the news to combine Woolworths Endeavour Drinks with hotels group ALH and then demerge it, it is worth remembering that not a single dollar of value has been created by the announcement. It might in the medium term if the demerger works, but only time will tell on this one. In fact, value will be destroyed in the short term because the transaction costs (which will be paid by Woolworths shareholders) are estimated to be $275 million. Yes, just a cool $275 million!

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