Wesfarmers, the Australian parent company of the Bunnings chain of DIY and hardware stores, has agreed to divest the Homebase business in the UK and Ireland to a company associated with Hilco Capital.
The Homebase acquisition has been described as “disappointing” by its Australian management, however many commentators have been less diplomatic with the venture even refered to as “the most disastrous retail acquisition in the UK ever”. Whilst the move never explicitly saught to target the UK trade market, Homebase largely jettisoned its ‘softer’ product lines, in-store concessions such as Laura Ashley and significantly reduced its kitchens and bathrooms offering.
The stores rebranded to Bunnings in particular took this approach further with, for example, dedicted areas to hand and power tools that would appeal to professional users.
Irrespective of its key customer demographic, Wesfarmers’ decision to divest the business will undoubtedly have an effect on the wider UK home improvement marketplace, with implications for the merchant sector.
The Wesfarmers statement said:
Under the terms of the agreement, the buyer will acquire all Homebase assets, including the Homebase brand, its store network, freehold property, property leases and inventory for a nominal amount. The 24 Bunnings pilot stores will convert to the Homebase brand promptly following completion. Wesfarmers will participate in a value share mechanism whereby it would be entitled to 20 per cent of any equity distributions from the business. This obligation is not limited by time, allowing Wesfarmers to participate in any profitable divestment of the business in the long-term.
Wesfarmers Managing Director Rob Scott said the agreement follows a comprehensive review of the Bunnings United Kingdom and Ireland (BUKI) business which considered a range of options to improve shareholder returns. He said: “A divestment under the agreed terms is in the best interests of Wesfarmers’ shareholders and will support the ongoing reset and repositioning of the Homebase business.
“While the review confirmed the business is capable of returning to profitability over time, further capital investment is necessary to support the turnaround. The materiality of the opportunity and risks associated with turnaround are not considered to justify the additional capital and management attention required from Bunnings and Wesfarmers.
“Homebase was acquired by Wesfarmers in 2016. The investment has been disappointing, with the problems arising from poor execution post-acquisition being compounded by a deterioration in the macro environment and retail sector in the UK. While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value.
“We acknowledge the past six months have been particularly challenging for the BUKI management and our team members in the UK and Ireland and we thank them sincerely for their hard work and commitment. The operating performance of the business has improved in recent months under the new management team led by Damian McGloughlin and he will continue to lead Homebase in delivering management’s turnaround plan. We wish Damian and the team well during the transition and as they take the business into its next chapter under a new owner with a track record of retail turnaround in the UK.”
With the conclusion of the review, Wesfarmers advises that it expects to record a loss on disposal of £200 million to £230 million in the Group’s 2018 full-year financial results, subject to completion and review by Ernst & Young. The divestment is expected to be completed by 30 June 2018.
