The Wesfarmers Way (A)

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The Wesfarmers Way (A)

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Publication Date:
July 10, 2019

Industry:
Retail & Consumer Goods

Source:
IMD

A discussion between two hedge fund managers is used to examine the merits of investing in Wesfarmers, an industrial conglomerate, following a transformative acquisition of a retail business called Coles, in 2007. Coles had been underperforming and was open to bids from Private Equity firms. It was a classic turnaround story. The case is brought to life as Wesfarmers has announced a demerger of Coles in 2018, hence it enables a comprehensive evaluation of the acquisition. The operation turnaround of Coles has been spectacular and the share price ten years on has also done well. However, the case stresses the importance of capital discipline in acquisitions and what optically can look like a good result, on closer examination may not really be the case. It also brings into the question of risk versus reward. The case examines the ways in which the success of major acquisitions can be assessed and the methods through which conglomerates can operate successfully. Study of conglomerates is in response to evidence of trends towards business diversification, as a means of delivering growth objectives.

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The Wesfarmers Way (A)

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