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Coles spin off a big deal

Australian industrial conglomerate Wesfarmers announced this morning a spin-off of its Coles supermarket business. In a deal worth around $20 billion Coles’ shares will be listed and Wesfarmers will retain a 20% stake. Given muted overnight action in global markets the deal is likely to dominate investor discussions today.

Futures market are pointing to small gains across the Asia Pacific region today after European shares rose and US shares rebounded from early session weakness. A strengthening US dollar could underpin positive investor sentiment. Oil rose, but copper and iron ore fell, indicating a mixed growth outlook. Similarly, bonds maintained lower yields but gold fell, indicating recent fears are abating.

As investors examine Wesfarmers’ proposals its likely traders will leap to speculation about possible acquisitions. The diverse portfolio of businesses under the Wesfarmers umbrella mean there are few limits to the range of potential targets. Perhaps the first clue is that management are seeking “a higher capital weighting towards businesses with strong earnings growth prospects”

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