What Wesfarmers Have in Mind? A Next Acquisition?

  • Oct 09, 2018 AEDT
  • Team Kalkine
What Wesfarmers Have in Mind? A Next Acquisition?

The top management of Wesfarmers Limited (ASX: WES) is taking a patient approach towards the acquisition. Rob Scott, the chief executive officer or CEO of the conglomerate, stated that he would be waiting for the right opportunity in respect of the value-accretive acquisitions. The opportunity has now arrived in front of the conglomerate’s CEO. The parts of the Buckeridge Group have been up for sale after the heirs of Len Buckeridge are witnessing some personal issues. This group is categorized as building materials’ manufacturer as well as a major builder in Western Australia (WA).  The management of Wesfarmers is of the view that they would be doubling the operating expenses as well as capital expenditure or CapEx towards loyalty, data analytics, and digital program. The company has decided to go ahead on this route so that they can reap the benefits of the significant data and digital assets which includes Flybuys, a customer loyalty scheme. After the demerger, Wesfarmers would be retaining its stake in Coles and Flybuys which could aid Wesfarmers’ digital as well as data initiatives in all the segments like Kmart, Bunnings, Officeworks, Target as well as industrial businesses. Mr. Scott’s opportunistic approach reflects that they won’t be paying increased takeover premiums as this could hamper the returns in the long-term.

After 5 months of the decision by the heirs of Mr. Buckeridge of selling the business, the group was planning to unload Westin as well as Aloft Hotels which are in Perth. Moreover, the sales of other assets are also being done with the help of private equity players. The shareholders of Wesfarmers are also supporting the decision of the conglomerate to buy Buckeridge Group. The group enjoys a strong presence in Western Australia. The analysts also have a favorable outlook on the acquisition by Wesfarmers.  According to the analysts, the factors which would be supporting the acquisition are the long-term horizon when it comes to investments of Wesfarmers, its experience in regard to the industrial businesses as well as a significant capital base.  

Wesfarmers is expected to witness strong momentum post the acquisition. The company could benefit from the synergy of Buckeridge’s materials business and unloading construction assets as the time passes by. Anyone with the strong capital base, significant experience in regard to the industrial sectors as well patience would be able to achieve the benefits. Wesfarmers is not new in the world of the acquisitions. The company has initiated bigger acquisitions than this one when we look in the history. The top management of Wesfarmers is not in the need of undergoing big and significant deals just to add value.

The business empire which built under the leadership of Mr. Buckeridge has been witnessing the impacts after his death in 2014. As a result, the $2.5 billion empires went to his over 20 family members. The family members are having several issues within themselves and are legally fighting over the group. They are thinking whether they should go for cash or the shares of BGC (Buckeridge Group of Companies).

At the time of writing, Wesfarmers Limited (WES) was trading at A$48.695 per share which implies an intra-day fall of 1.267%. Over the past 6 months, the stock has delivered the return of 19.30%.

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