(Adds details on demerger, background) May 10 (Reuters) -...

(Adds details on demerger, background)

May 10 (Reuters) - Australia's biggest supermarket chain Woolworths Group (WOW) on Monday said it would press ahead with the separation of its drinks and hospitality business which was shelved last year due to the COVID-19 pandemic.

The company initially announced plans to demerge Endeavour Group, formed by restructuring its drinks business and combining it with its hotels unit, in July 2019.

Woolworths "believes that a demerger of Endeavour Group will enhance shareholder value and it will create two leading ASX-listed companies," Group Chairman Gordon Cairns said.

Eligible shareholders will get one new Endeavour share for every Woolworths share they own, it said.

After the demerger is complete, Woolworths will consider its capital management options and could return between A$1.6 billion and A$2 billion ($1.26 billion and $1.57 billion) to shareholders, the company added.

The grocer, which operates more than 3,000 stores in Australia, said it and joint-venture partner Bruce Mathieson Group will each hold a 14.6% stake in Endeavour after the separation.

Endeavour expects to pay a dividend of 70% to 75% of its net profit after tax for the second half of fiscal 2021.

($1 = 1.2731 Australian dollars)