Market waits on Wesfarmers' next move

Headshot of Sean Smith
Sean SmithThe West Australian
Wesfarmers chief executive Richard Goyder.
Camera IconWesfarmers chief executive Richard Goyder. Credit: The West Australian

Wesfarmers has left an expectant market in the dark about its next move after yesterday pocketing more cash with the $1 billion sale of its last insurance operations.

An agreement to sell its insurance broking division to US group Arthur J. Gallagher & Co has reignited speculation about how Wesfarmers intends to deploy a growing war chest.

However, Wesfarmers chief executive Richard Goyder is not giving anything away, saying the group would determine the best means of using its insurance sale proceeds and the other cash.

"That could be anything from making investments to returning it to shareholders," Mr Goyder told _WestBusiness _ from Adelaide, where Wesfarmers management was holding a strategy meeting.

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"I think we've got a great track record and we'll do what's best for shareholders.

"We know over the long term we have been financially disciplined and that is what's given us a good reputation. And you can ruin that reputation by doing just one thing poorly."

The sale to Arthur J. Gallagher comprises Wesfarmers' OAMPS Insurance Brokers in Australia, OAMPS UK and Crombie Lockwood in New Zealand, as well as associated premium funding operations in Lumley Finance and Monument Premium Funding.

The transaction will sever a near century-old involvement in insurance which began with Westralian Farmers Co-op insuring WA farmers in 1919.

The latest deal follows Wesfarmers' December agreement to sell its underwriting business to Insurance Australia Group.

Wesfarmers said yesterday the divestments, which are subject to various regulatory approvals, were expected to generate total proceeds of about $3 billion and a pre-tax profit of between $1.01 billion and $1.085 billion, including $310 million to $335 million on the broking component.

Mr Goyder said Wesfarmers' insurance business neither had scale nor strong enough returns to warrant retention within the group's diversified portfolio.

He said the broking business was no longer a natural fit "and the offer Arthur J. Gallagher came up with is a very good one".

The insurance brokerage operations employ about 1700 people and turned over $331.1 million in 2012-13 from more than 50 offices across Australia, New Zealand and Britain.

Illinois-based Arthur J. Gallagher said the acquisition represented an important strategic step, significantly increasing its presence in the region.

Wesfarmers share price rose 51¢ yesterday to $42.08.

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