* Wesfarmers hoped to raise up to A$1.5 bln from Officeworks
* Says dropping IPO plans "in light of current equity
* Move highlights challenges in Australia's retail sector
(Recasts, adds fund manager comment, IPO data)
By Byron Kaye and Tom Westbrook
SYDNEY, May 17 Australia's Wesfarmers Ltd
cancelled a potential $1.1 billion IPO of its office
supplies unit, underscoring uncertainty in a retail sector hit
by weak spending and the slated arrival of online shopping giant
The scrapping of Officeworks' listing disrupts a plan by
Wesfarmers, Australia's biggest company by sales, to carve off
non-core assets and focus on its biggest revenue spinner,
supermarket chain Coles, itself facing fresh competition from
cut-price entrants like ALDI Inc.
"As a shareholder, I would have preferred them to sell it,"
said Danial Moradi, equity strategist at Lonsec Stockbroking,
which owns Wesfarmers shares, referring to Officeworks.
"It's definitely a concern for a potential buyer of that
business, the competitive threat. You probably wouldn't value it
at premium multiples, not with this big threat hanging around
the corner," Moradi said, referring to Amazon.
Seattle-based Amazon said last month it would open its
online shopfront service at an unspecified time in Australia, in
a move set to increase pressure on the domestic retail sector to
catch up with the digital economy.
Wesfarmers said in a statement on Wednesday that it pulled
the listing because "current equity market conditions" would
mean the sale "would not realise appropriate value" for the
asset. A spokeswoman declined to comment on the impact of
Bankers were distributing marketing materials for what was
to be the country's IPO of the year as recently as this month,
according to brokers who saw the material.
Share price pressure has, however, been building for months
on retailers as fund managers short-sell stocks they see as
vulnerable to online competition, higher overheads due to a
softening Australian dollar, and soft discretionary spending
caused by high housing prices.
Among Officeworks' peers, shares of electronics retailer JB
Hifi are down 15 percent in the past three months,
while Harvey Norman has lost 24 percent. Wesfarmers
shares are up 0.7 percent over the same period while the
benchmark S&P/ASX 200 index is flat.
Wesfarmers shares were down 1.2 percent on Wednesday,
compared to the broader market's 0.9 percent fall.
Graeme Burke, a principal at WaveStone Capital, which owns
Wesfarmers shares, said Amazon's imminent entry could be a
double whammy for retailers. "You've seen multiples contract
because of that expected increase in competition (but) what does
it actually do to underlying earnings?".
Last week, department store Myer Holdings Ltd said
third-quarter sales were down 3.3 percent, while luxury handbags
maker Oroton on Tuesday downgraded earnings guidance citing
"soft trading conditions".
The cancellation lays the groundwork for a lacklustre year
of IPO activity in Australia, which is already down 39 percent
compared to the same time a year earlier, by the amount of money
raised, according to Thomson Reuters data.
Wesfarmers bought the then-struggling office supplies unit
as part of its A$19.3 billion takeover of supermarket chain
Coles in 2007. Officeworks' earnings have nearly doubled since
($1 = 1.3463 Australian dollars)
(Additional reporting by Swati Pandey; Editing by Jonathan
Barrett and; Muralikumar Anantharaman)