According to The Australian, Kmart, Target and Officeworks could be on the chopping block at Wesfarmers Ltd's (ASX: WES) head office.
It is rumoured, according to the paper, that Wesfarmers could be actively considering divesting its Kmart, Target and Officeworks businesses into a single company which will be listed on the Australian Stock Exchange.
The company has not released any information to the market to suggest that it plans to make such a large move, with the combined businesses expected to fetch $6 billion. However, it is believed investment bankers have pitched the idea to Wesfarmers.
The idea being that when it is sold as an individual company Wesfarmers would pocket some of the value that would be created from selling the businesses, and it would also avoid a potential fallout from the Australian arrival of e-commerce giant Amazon.
Some would argue that such a deal also offers investors the opportunity to buy a big box retailer without the Coles and Bunnings Warehouse businesses.
However, it may also be strategic for other reasons. For example, Wesfarmers tried to sell Officeworks but failed. And including Kmart would make the sale of Target much more palatable to investors worried about the future of Target.
Is it time to buy Wesfarmers shares?
Corporate activity such as demergers can present opportunities for investors, especially if investors are able to own each of the smaller entities. For example, if Wesfarmers divested Officeworks, chances are, many large institutional investors would be forced to sell it because their mandates would not allow such a small company in their portfolios.
Demergers can also provide a 'recharge' of the corporate batteries and enable the separate companies to focus their efforts on their individual businesses. An example would be BHP Billiton Limited's (ASX: BHP) demerger of South32 Ltd (ASX:S32).
However, in my opinion the real value of Wesfarmers is in its Bunnings Warehouse business. And Coles, of course. But even that is facing strong competition.
At today's prices I think Wesfarmers shares are too expensive to justify a buy rating. Therefore, I'm waiting on the sidelines, for now.
