Wesfarmers has proposed to demerge its Coles supermarket division, which would create a new Top 30 company listed on the Australian Securities Exchange (ASX) with leading positions in supermarkets, liquor and convenience.

By de-merging its supermarket division, Wesfarmers intends to attain strong cash generation capability to support dividend distributions and an earnings profile, which is expected to be resilient through economic cycles.

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The decision has been taken following a review of the Wesfarmers portfolio and an assessment of its capital employed to support higher levels of future growth and total shareholder returns.

Wesfarmers managing director Rob Scott said that the group was repositioning its portfolio with an objective to target a higher capital weighting toward businesses with strong future earnings growth prospects.

“We believe Coles has developed strong investment fundamentals and is on a scale where it should be operated and owned separately.”

Scott said: “Wesfarmers acquired Coles as part of Coles Group in 2007 and since then has successfully turned around the business and restored its position as a leading Australian retailer.

“We believe Coles has developed strong investment fundamentals and is on 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.

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“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions.

“The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio. The Group expects to retain its current strong credit ratings and the dividend policy will remain unchanged.”

The demerger of the supermarket chain is subject to shareholder and other approvals.

Wesfarmers chairman Michael Chaney said: “Wesfarmers’ operating model has benefited our shareholders over the long-term and will continue to provide the framework for future capital allocation decisions.”