Wesfarmers Share Price Rises, While Making Crucial Business Changes

This morning Wesfarmers Limited [ASX:WES] went through a surge in share price value by 6.31%.

The month of March has seen a significant amount of improvement for Wesfarmers, four days ago they were trading at $41.12 a share, now they have jumped up to $43.75 a share.

Wesfarmers have been operating since 1914, while holding a strong market value of $49.662 billion.

They engage in retail, coal and mining production as well as many other sectors. Wesfarmers operates hundreds of retail stores around Australia.

Wesfarmers downsizes

Recently, Wesfarmers has made the decision to end business with its Coles-Myer assets.

Wesfarmers acquired Coles back in 2007, marking a transformation in the business to become a more diversified trader.

At the time, they had to pay at least $22 billion for its acquisition which included Coles, Kmart, Target and Officeworks.

A risky move, especially in 2007 when Coles was in a much worse state.

Wesfarmers helped Coles outcompete its Woolworths rival by spending billions to improve Coles’ image.

Theshoutout.com reported that Wesfarmers Managing Director Rob Scott stated:

We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately. It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity.

Woolworths has more or less completed their task of stabilising Coles’ business.

Why their detachment?

Wesfarmers were paying too much for their Coles assets.

Millions were invested to help steer the business into the right direction.

Wesfarmers have now created a platform for themselves where they can return to their early days of simply being a trader of buying and selling assets. Instead of primarily focusing on enhancing the Coles brand.

Despite Wesfarmers helping the franchise, Coles did suffer a revenue drop in 2017, as well as their profits.

Wesfarmers can now focus on its other businesses as well as future acquisitions that can take place.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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