Fate of Homebase Likely To Be Known Within Days

The fate of Homebase, with 250 stores and 12,000 employees across the UK and Ireland is likely to be known by this weekend, as Wesfarmers look to exit from it's ill-fated and poorly executed UK retail venture.

According to Sky News, Wesfarmers received final bids for Homebase from three turnaround investment firms on Tuesday of this week, including Alteri investors, Endless and Hilco. Sources close to Wesfarmers revealed that Alteri who previously owned Austin Reed and Hilco (who were involved with Focus DIY before their demise and more recently HMV) are the two leading companies. It's now understood that Wesfarmers will make a final decision on the sale of the Homebase business before this weekend.

Both Alteri and Hilco are likely to receive a dowry worth more than £75m from Wesfarmers and will quickly move to restructure the business by closing a significant number of their poorer performing stores, potentially putting thousands of people out of work.

The takeover of Homebase by Wesfarmers has been a disaster from day one with the strategy, people and range changes leading to the company losing almost £20m a month. 

Sales in the first nine months of their financial year to the end of March fell 14.7% to £726m, a decrease of 13.9% on a like for like basis. Wesfarmers confirmed that improved trading results in the early part of the quarter were offset by severe weather in March that significantly affected trading, particularly in the seasonal gardening and outdoor living categories.

Read - Wesfarmers blame poor weather for further sales decline at Homebase.

Even with a new owner, the long term fate of Homebase is uncertain, as both Alteri and Hilco are likely to consider the long term winding down of the business. This news article below from November 2010 explains what happened with Focus DIY at a similar stage of their demise:-

Read - Break-up merchants eye struggling DIY chain Focus.

Alvarez & Marsal (A&M), a restructuring advisor, has also been working with Wesfarmers on alternative options to a sale, including the insolvency mechanism, a Company Voluntary Arrangement (CVA). Sources also confirmed that A&M would be in line to act as administrator if a solvent sale of Homebase falls through in the coming days.

Wesfarmers originally began approaching potential buyers of the DIY chain earlier this year, just two years after completing a £340m takeover of the company from Home Retail Group.

Read - Wesfarmers approach potential buyers as Homebase sell-off looks likely.

Wesfarmers has committed to update investors at their annual strategy day planned for Thursday 7th June. Homebase was supposed to be a launchpad from which the Australian retailer would take on B&Q and then the rest of Europe. However, their strategy backfired spectacularly, forcing it to write off more than £500m after it made a number of self-inflicted errors.

For a summary of their 'self-inflicted' woes, read the following:-

Read - 100 days to save Homebase.

It's not known whether Wesfarmers will separately look to sell the 23 Bunnings Warehouse stores, although we have a sneaky feeling B&Q might just be interested in one or two of them.

Source: Insight DIY Team

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