One of Australia’s largest supermarkets chains is demerging its alcohol, hospitality and gaming interests in newly announced plans to spin off its drinks and pub units by the end of the year.

Woolworths told the ASX it would combine its liquor and hospitality businesses ahead of divestment next year, but says it is not trying to distance itself from the gambling industry.

Woolies is Australia’s largest pokies machine owner through its stake in ALH Group, but has announced it will merge and sell its pubs and bottle shops as a new company, Endeavour Group.

However, it will keep a minority stake of around 15 per cent in the new business.

The merger will create Australia’s biggest standalone integrated alcohol and hospitality business, with sales of roughly $10 billion.

Shares in Woolworths rose by as much as 3.7 per cent after Wednesday’s announcement to a five-week high of $34.17.

According to Woolworths, the separation, which follows on from the chain offloading its petrol business, would further allow it to focus on its food and everyday needs offerings.

In a statement, Woolworths chairman Gordon Cairns said a merger of Endeavour Drinks and ALH followed by a separation “is in shareholders’ best interests and will benefit customers and team members of both groups.”

Woolworths chief executive and ALH chairman Brad Banducci said the sale wasn’t an attempt to distance the company from gambling, despite growing pressures to do just that.

Banducci said: “It’s not about gaming, it’s about helping both businesses unlock their full potential.”

Last year, more than 30 per cent of Woolworths’ earnings came from Endeavour Drinks and ALH. The newly joined Endeavour Group will include more than 1500 BWS and Dan Murphy outlets and 327 ALH hotels and pubs.