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Australia's Wesfarmers to spin off Coles division

Wesfarmers Ltd. said March 15 that it plans to demerge its supermarket chain Coles to create a new company listed on the Australian Securities Exchange.

The Australian retailer will retain a minority ownership of up to 20% in Coles after the demerger, which will include Coles supermarkets, Coles Online, Coles Express, Coles Financial Services and Spirit Hotels. Wesfarmers also plans to keep a substantial ownership stake in the flybuys loyalty program.

"We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately," Wesfarmers Managing Director Rob Scott said in a statement. "It is now a mature and cash-generative business, which is expected to have a strong balance sheet and dividend paying capacity."

Wesfarmers bought Coles, which sells fresh food, groceries and other general merchandise, from Coles Group Ltd. in 2007. The Coles division accounts for about 60% of the group's capital and 34% of its divisional earnings, according to the release.

The spinoff is expected to be completed in fiscal 2019, subject to shareholders and other approvals. Wesfarmers said shareholders will receive shares in Coles in proportion to their existing holdings.

The group also appointed Steven Cain, CEO for supermarkets and convenience at Metcash Ltd., as the next managing director of Coles. He will succeed John Durkan, who will step down later this year.