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Australia's Woolworths to offload drinks, pubs units

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The demerger gives investors exposure to a standalone listed operator of 1,500 liquor stores and 327 pubs worth A$10 billion.

Sydney

AUSTRALIA'S biggest supermarket chain Woolworths Group said on Wednesday it will combine and spin off its drinks and pubs units to focus on its core business, and cut back its contentious involvement in poker-machine gambling.

The demerger would give investors exposure to a standalone listed operator of 1,500 liquor stores and 327 pubs worth about A$10 billion (S$9.5 billion), while reducing family-focused Woolworths' reliance on slot machine revenue, said analysts.

It also marks the beginning of the end of the major retailers' addiction to poker machine revenue, after Woolworths rival Coles Group said in March it was carving off its pubs business into a joint venture.

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David Walker, a large-companies portfolio manager at Clime Asset Management, said: "A significant proportion of the world's funds under management that would invest in this stock is concerned about its ownership of hotels and poker machines. Whether that's the intention or not, it just removes a hurdle."

Woolworths shares were trading 3 per cent higher late on Wednesday, while the broader Australian market was up about 0.5 per cent, a sign that investors supported the split.

Woolworths' chief executive officer Brad Banducci said the divestment was intended to simplify both businesses in response to fierce competition from Internet-based retailers, not to allay investor concerns over gambling.

"We did it to unlock potential, not to avoid issues. There will be more simplicity which will lead to more agility," he told reporters, adding Woolworths could sell the new asset rather than demerge.

The move comes two weeks after New South Wales state's gambling regulator said it was investigating a complaint that two Woolworths-owned pubs broke the law by giving gamblers free alcohol. The pubs and drinks units brought about a fifth of Woolworths' pre-tax profit last year, its annual report says.

Woolworths' poker machine arm ALH is Australia's third-largest owner of slot machines; it has some 12,000 of them, behind only casino operators Crown Resorts and Star Entertainment Group.

Public concerns about the social costs of gambling - Australians lose about A$14 billion a year on poker machines - and the conversion of pubs into gambling venues have dogged Australian retailers for years.

Alliance for Gambling Reform head Tim Costello said that Woolworths' cutting of its ties with slot machines was a "globally significant moment for the gambling divestment movement, not unlike Rio Tinto getting out of coal". REUTERS