Coles shares on watch after massive $300 million selloff to Viva Energy

The Coles Group Ltd (ASX: COL) share price will be monitored by keen investors on Wednesday morning after the company sold off a massive part of its operations.

Prior to the ASX opening, the supermarket giant announced that it has entered into a binding agreement to sell its Coles Express petrol station network to Viva Energy Group Ltd (ASX: VEA).

The 710 sites were sold off for $300 million, with Viva also taking $816 million of lease liabilities off Coles’ balance sheet.

The newly acquired Coles Express locations will be rebadged over the next two years to Viva’s Shell branding.

Coles to focus on supermarket and liquor outlets

Coles chief executive Steven Cain said the deal is “positive” for both sides and their shareholders. 

“Viva is well-placed to make the most of opportunities to grow the Express business into the future, while we will strengthen our focus on our omnichannel supermarket and liquor businesses.”

Shell and Coles Express already had a co-operative agreement over the past two decades through co-branding, the Flybuys loyalty program and four-cent fuel discounts from supermarket receipts.

This partnership will continue beyond the acquisition through a new “multi-year” agreement.

The completion of the Coles Express takeover will occur in the first half of 2023, subject to conditions such as approval from the Australian Competition and Consumer Commission.

Coles shares are down 6.4% so far this year, while paying out a 3.76% dividend yield. The Viva share price is up 12.4% year to date, and is paying out a whopping 6.4% dividend yield.

How Coles Express is performing

Coles revealed that, for the 2022 financial year, Coles Express reported sales of $1.13 billion and earnings before interest and taxation of $42 million.

That means Viva managed to buy the petrol stations at a price-to-earnings ratio of about 7, which compares to Coles’ overall multiple of 21. But Viva does take on real estate lease liabilities of more than $800 million.

The supermarket giant stated the $300 million sale will mean it will have made a “small gain”. It will assist Viva for the next two years to ensure continuity of operations.

Viva Energy chief Scott Wyatt welcomed 6,000 Coles Express staff to his company.

“The acquisition means we will be able to accelerate our plans to grow the integrated fuel and convenience business while our customers continue to enjoy the excellent customer service provided by the dedicated Express team.”

The post Coles shares on watch after massive $300 million selloff to Viva Energy appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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