Struggling supermarket company Woolworths Limited (ASX: WOW) could boost its war chest by up to $20 million as it puts its specialty grocer business on the block.
Woolworths needs the cash to reinvest in its core business to fight rivals in a supermarket war that has cost its chief executive his job and sparked rumours that corporate raiders are circling the wounded retail giant.
It seems the company isn't waiting around for a new head before taking defensive action with Woolworths reported to have started the sales process for its 10-store gourmet food chain Thomas Dux, according to the Australian Financial Review.
This is not the first time Woolies has tried to sell the chain, which has only become profitable for less than a year. But Thomas Dux is considered non-core because it only appeals to a fairly small niche market and has limited growth options.
Woolworth is also believed to be considering cutting loose its embattled home improvement chain Masters but I don't think it will press the fire button on that division until it finds a new chief executive given the amount of money it has sunk into the loss-making division.
Woolworths isn't the only one looking at downsizing to survive the supermarket wars. Metcash Limited (ASX: MTS) sold its auto accessories retail chain Autobarn to Burson Group (ASX: BAP) to concentrate on turning around its IGA supermarket franchise.
Wesfarmers Ltd's (ASX: WES) Coles supermarket business is doing the best among the Australian-listed players but I wonder what plans it has for its struggling alcohol retailing chain.
But coming back to Woolworths, the company shopped Thomas Dux around earlier this year asking for between $10 million and $20 million but is believed to have pulled the plug after Woolworths South Africa, which bought David Jones, made an approach.
But beggars can't be choosers and Woolies might be more inclined now to entertain its foreign namesake. Besides, the more potential buyers it can muster, the more likely it will be able to get a good price for Thomas Dux.
The more important question for investors is whether the divestment program is a game-changer for Woolies, which has shed 23% of its value over the past year.
The short-answer is "no", at least not yet. Thomas Dux is immaterial to Woolies given that the group generated sales of $32.4 billion in the first half.
The divestment of Masters will be more significant as management won't have to invest further in the venture and could unlock working capital that's estimated by some to be worth $1 billion.
But that will take time and so will the turnaround of its core supermarket business. It's just too early to be bargain hunting this stock, in my opinion.
If you were looking to make use of the sharp market pullback to make a value buy in the sector, I would put my money on Wesfarmers as the stock has also been sold down heavily but management doesn't have holes to plug like Woolies and Metcash.
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