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Supermarket giant Coles will be spun off and become one of the 30 biggest companies on the Australian stock market in what owner Wesfarmers has called a “once in a decade” move.

Wesfarmers plans to retain as much as 20 per cent of the new Coles business, which analysts suggest would be worth about $18 billion, and hand the remainder over to shareholders.

The Perth-based conglomerate will also hang on to the Kmart and Officeworks businesses it acquired when it bought Coles in 2007, and believes the separation will let it focus on units including its local Bunnings hardware stores while providing scope for future acquisitions.

Coles accounts for 60 per cent of Wesfarmers’ employed capital, but only 34 per cent of earnings.

“It’s a once in a decade repositioning of the portfolio,” managing director Rob Scott said on Friday.

Mr Scott said the board had discussed offloading the 806 Coles supermarkets and other associated stores in previous years.

He revived the proposal as part of his pitch to succeed Richard Goyder last year.

“There is an opportunity for us to deliver a superior return,” Mr Scott said.

“That doesn’t mean that returns from Coles won’t be good returns; they just will be more moderate levels of return.”

Coles’ food sales growth has lagged that of Woolworths in recent years as its arch rival slashed prices, but Mr Scott said Coles remained an attractive investment.

“It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity,” Mr Scott said.

Citi retail analyst Bryan Raymond said the move was positive both for Wesfarmers shareholders and the wider supermarket sector.

“Shareholders can now gain exposure to a Wesfarmers business primarily driven by Bunnings in Australia and New Zealand,” Mr Raymond said in a note.

“The read through for Woolworths and the broader grocery industry is favourable … with Coles unlikley to rebase earnings during this demerger process.”

At 1315 AEDT, shares in Wesfarmers were $2.58, or 6.3 per cent, higher at $43.78.

Woolworths shares were up 55 cents, or 2.1 per cent, at $27.00.

Metcash supermarkets chief executive Steven Cain will replace John Durkan as managing director of Coles, returning in September to a business he briefly led prior to its 2007 purchase by Wesfarmers.

“Steven did work for Coles for a couple of years and did try to implement a number of the changes that we ultimately implemented when we got control of it,” Mr Scott said.

“Steven didn’t have the broader support of the team, most of whom were not part of the turnaround when we got hold of the business.”

The spin off would include Coles supermarkets and online, 894 Liquorland, Vintage Cellars and First Choice Liquor stores, 712 Coles Express fuel and convenience stores, a general insurance and credit cards business, and 881 Spirit Hotels.

Wesfarmers would be left with its Bunnings hardware stores, Target, Kmart, Officeworks and an industrials portfolio.

It is mulling a possible exit from Bunnings in the UK and Ireland after its venture into overseas markets led to $1.023 billion of impairments and an 86.6 per cent drop in first-half profit.

The deal is expected to complete in the 2019 financial year, subject to shareholder and regulator approval.