Analysis: Wesfarmers to sell Officeworks

OPI looks at the announcement from the Australian conglomerate to divest its high-performing OP business.

Wesfarmers is looking to cash in on Officeworks’ success and earn potentially in excess of A$1 billion (US$770 million), either via a sale or an IPO.

Officeworks was acquired in 2007 as part of the A$21 billion Coles Group deal, and the office products retailer has been evolving successfully under the leadership of Managing Director Mark Ward, growing sales, profits and margins, and developing a strong multichannel offering.

Speaking on Wesfarmers’ earnings conference call, the group’s Managing Director Richard Goyder said Officeworks was “a really discrete business” and could easily be separated. However, he added that Wesfarmers was just looking at its options and had decided to make this strategic review public – if it’s not able to achieve the required shareholder returns then it will “happily leave [Officeworks] in the stable”.

Goyder denied that the timing of this strategic review of Officeworks was linked to the entry of Amazon into the Australian market, stating that Officeworks was “quite different” and that it already had a significant online business.

It’s interesting that the three biggest pure-play business supplies resellers in Australia – Staples, OfficeMax and Officeworks – are all up for sale. Could that lead to these businesses merging in some way?

While the Australian competition authorities have already given the green light to a Staples/OfficeMax combination as part of Staples’ attempt last year to acquire Office Depot, it might make more sense to combine Officeworks with either Staples or ‘Max. Officeworks caters to the small business customer, Staples and OfficeMax more to corporate and public sector clients, so – on the surface at least – that would create an entity serving businesses of all sizes and there would no doubt be some significant synergies to be achieved.

It would also make sense in terms of branding. Officeworks is very much an Australian brand with strong local brand equity, so renaming Staples or OfficeMax in Australia as, for example, Officeworks Corporate Solutions, would probably be a smart move.

It’s all just speculation at this stage. Officeworks’ achievements have been built on providing solutions for the small business customer with the store at the heart of the customer experience. But it’s not easy at the moment to find a business supplies reseller that has been able to profitably combine retailing, catalogue/online delivery and enterprise/public sector solutions. Anyone looking to try and do that with Officeworks would therefore need to proceed with considerable caution.

Turning to Officeworks’ results for the six months to the end of December 2016, it was another solid performance with sales growing 5.9% year on year to A$927 million and EBITDA up 5.7% to A$74 million.