Wesfarmers to hang on to Officeworks

Conglomerate dismisses suggestions office products retailer should be sold.

Wesfarmers business Officeworks should be the next of the conglomerate’s operations to get placed on the block, according to one analyst.

But not so fast. Yes, Wesfarmers on Monday announced the sale of its insurance broking business for $1.16 billion to global giant Arthur J Gallagher.

And Officeworks is Australia’s largest supplier of office and stationery products and while it is unclear what value the business has, Wesfarmers managing director Richard Goyder said it was worth in excess of $1bn.

Senior industrials analyst Scott Marshall from Shaw Stockbroking said Officeworks was smaller than some other Wesfarmers’ divisions and faced growing competition from other groups also importing the same products from China.

“There has been a lot of rationalisation and changes of ownership in that sector,” he said. “I would be looking at an exit strategy.”

But Mr Goyder said Officeworks, purchased as part of the company’s $20bn acquisition of Coles in November 2007, was “a really good business and growing well”.

He dismissed suggestions that the business could be placed up for sale.

Anton Tagliaferro, investment director at Investors Mutual, which invests in Wesfarmers shares, doubted the company would sell Officeworks.

“For Wesfarmers, retail has become their core,” he said.

However, he said he believed Wesfarmers was looking offshore for retail acquisitions following the sale of its insurance operations, but finding the right opportunity was always a challenge.

“Finding the right acquisition of size that makes sense could be a bit harder.

“Coles was a good one -- a company-transforming acquisition. The trick is now to find the next company.”

Another shareholder said Wesfarmers had a good track record for returning capital to shareholders.

Deutsche Bank analyst Michael Simotas said in a research note that the price received for the sale of its insurance broking business was attractive.

“We assume that the company will use the proceeds to pay down debt while looking for potential acquisition targets,” Mr Simotas said.

Gresham and Macquarie Group advised on Wesfarmers on the sale.

Wesfarmers shares closed up 7c at $42.15 yesterday.

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