The future of Wesfarmers (thinking exercise), page-8

_[#24]

_{Thinking exercise: Wesfarmers merger and acquisition play}

_{Building on my previous post on 7 January 2023 (Post #: 65573004).}

_{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}

• _{Health contributed 9 per cent}

_{Hypothetically, if Wesfarmers consolidated with Mineral Resources, Seven Group, and Incitec Pivot, Bega, Sonic Health, Qube, Elders, NRW, Vulcan Steel, 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)	Bega (current)	Sonic Health (current)	Qube Logistics(current)	Elders (current)	NRW (current)	Vulcan Steel (current)	Wesfarmers (hypothetical)
1	Shares on issue	1,134,514,310	189,780,300	363,260,588	1,942,225,029	303,898,577	480,898,313	1,765,762,524	156,476,574	449,193,530	131,408,572	2,357,845,017
2	Share price	$48.00	$90.00	$23.00	$4.00	$4.00	$31.00	$3.00	$10.00	$3.00	$9.00	$48.00
3	Market capitalisation	$54,456,686,880	$17,080,227,000	$8,354,993,524	$7,768,900,116	$1,215,594,308	$14,907,847,703	$5,297,287,572	$1,564,765,740	$1,347,580,590	$1,182,677,148	$113,176,560,816
4	Revenue	$36.84 b	$3.42 b	$8.01 b	$6.31 b	$3.00 b	$9.34 b	$2.48 b	$3.44 b	$2.37 b	$0.89 b	$76.10 b
5	Profit	$2.35 b	$0.35 b	$0.55 b	$1.01 b	$0.05 b	$1.46 b	$0.15 b	$0.16 b	$0.09 b	$0.11 b	$6.29 b
6	Dividend	$1.80	$2.75	$0.46	$0.27	$0.11	$1.00	$0.08	$0.56	$0.13	$0.57	$1.75
7	Yield	3.8%	3.1%	2.0%	6.8%	2.8%	3.2%	2.7%	5.6%	4.2%	6.4%	3.6%
8	Price-to-earnings ratio	23.2	48.7	15.2	7.7	24.3	10.2	35.3	9.8	15.0	10.4	18.0

_{Market capitalisation}

• _{Wesfarmers $55 billion}

• _{Mineral Resources $17 billion}

• _{Seven Group $8 billion}

• _{Incitec Pivot $8 billion}

• _{Bega $1.2 billion}

• _{Sonic $15 billion}

• _{Qube $5 billion}

• _{Elders $1.6 billion}

• _{NRW $1.3 billion}

• _{Vulcan Steel $1.2 billion}

• _{Hypothetical Combined Wesfarmers $113 billion}

_{Hypothetical Combined Wesfarmers}

• _{2,357,845,017 shares outstanding}

• _{$48.00 share price}

• _{$1.75 dividend distribution per year}

• _{3.6 per cent dividend yield}

• _{$76 billion revenue per year}

• _{$6.29 billion profit per year}

_{Selected major shareholders}

• _{Kerry Stokes, 4.21 per cent ownership interest}

• _{Chris Ellison, 1.79 per cent ownership interest}

_{Hypothetical Combined Wesfarmers revenue by business unit 2021/22}

• _{Bunnings contributed 23 per cent}

• _{Kmart contributed 13 per cent}

• _{Officeworks contributed 4 per cent}

• _{Chemicals, energy, minerals, fertilisers contributed 17 per cent}

• _{Industrial safety, equipment, construction materials contributed 14 per cent}

• _{Health contributed 14 per cent}

• _{Food and agribusiness contribute 8 per cent}

• _{Transport contribute 3 per cent}

• _{Construction contribute 3 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 (eg. logistics, material sourcing via vertically integrated supply chains, constructing new projects, etc).}

_{In terms of ASX market cap comparable, the Hypothetical Combined Wesfarmers business would become the 4th most valuable business behind BHP, CBA, and CSL leaping ahead of NAB, Westpac, ANZ, Fortescue, Woodside, and Macquarie from its current 10th position. Not that size matters (other than economies of scale), but more so the underlying businesses.}

_{In terms of valuation, the current Wesfarmers business is priced by the market at a price-to-earnings ratio of around x23 times, whereas the individual businesses the Hypothetical Combined Wesfarmers are around x18 times. If the current premium were maintained in a Hypothetical Combined Wesfarmers case, then the Wesfarmers share price would be around $61.74. This would create an uplift of around 29 per cent in value for both existing Wesfarmers shareholders and shareholders in businesses Wesfarmers merges as part of Hypothetical Combined Wesfarmers.}

_{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.}