The future of Wesfarmers (thinking exercise)

[#23]

Thinking exercise: Wesfarmers merger and acquisition play

More of a thinking exercise than anything else, but some thoughts below:

The Wesfarmers business is somewhat largely influenced by Bunnings which contributes 48 per cent to aggregate revenue. Combining Bunnings, Kmart, and OfficeWorks and those 3 contribute 83 per cent of total revenue.

During financial year 2021/22, Wesfarmers reported revenue of $36.8 billion of which:

• Bunnings contributed 48 per cent
• Kmart contributed 26 per cent
• Officeworks contributed 9 per cent
• Chemicals, energy, fertilisers contributed 8 per cent
• Industrial safety contributed 5 per cent

Hypothetically, if Wesfarmers consolidated with Mineral Resources, Seven Group, and Incitec Pivot, then the combined business would be considerably more diversified while maintaining similar dividend distributions as current.

		Wesfarmers (current)	Mineral Resources (current)	Seven Group (current)	Incitec Pivot (current)	Wesfarmers (hypothetical)
1	Shares on issue	1,134,514,310	189,780,300	363,260,588	1,942,225,029	1,803,926,370
2	Share price	$46.50	$85.00	$21.50	$3.70	$46.50
3	Market capitalisation	$52,754,915,415	$16,131,325,500	$7,810,102,642	$7,186,232,607	$83,882,576,205
4	Revenue	$36.84 b	$3.42 b	$8.01 b	$6.31 b	$54.58 b
5	Profit	$2.35 b	$0.35 b	$0.55 b	$1.01 b	$4.26 b
6	Dividend	$1.80	$2.75	$0.46	$0.27	$1.80
7	Yield	3.9%	3.2%	2.1%	7.3%	3.9%
8	Price-to-earnings ratio	22.4	46.0	14.2	7.1	19.7

Market capitalisation

• Wesfarmers $53 billion
• Mineral Resources $16 billion
• Seven Group $8 billion
• Incitec Pivot $6 billion
• Hypothetical Combined Wesfarmers $84 billion

Hypothetical Combined Wesfarmers

• 1,803,926,370 shares outstanding
• $46.50 share price
• $1.80 dividend distribution per year
• 3.9 per cent dividend yield
• $55 billion revenue per year
• $4.26 billion profit per year

Selected major shareholders

• Kerry Stokes, 5.31 per cent ownership interest
• Chris Ellison, 2.28 per cent ownership interest

Hypothetical Combined Wesfarmers revenue by business unit 2021/22

• Bunnings contributed 33 per cent
• Kmart contributed 18 per cent
• Officeworks contributed 6 per cent
• Chemicals, energy, minerals, fertilisers contributed 23 per cent
• Industrial safety, equipment, construction materials contributed 18 per cent

Such a business would be significantly more diversified and potentially in a position to better allocate capital to growth projects/businesses as well as realise synergies between.

In terms of ASX market cap comparable, the Hypothetical Combined Wesfarmers business would become the 5th most valuable business behind BHP, CBA CSL, and NAB leaping ahead of Westpac, ANZ, Fortescue, Macquarie, and Woodside from its current 10th position. Not that size matters (other than economies of scale), but more so the underlying businesses.

Reiterating this was more of a thinking exercise than anything else — but a business with such diversification would be the pinnacle representation of the Australian economy bar financials/banking exposure.

— DK.. just some thoughts, do your due diligence and decide your own actions.