Sainsbury's sells Homebase for £969m

Supermarket chain Sainsbury's has sold its Homebase DIY chain in a two-fold deal worth £969m. The arrangement will see its chain of stores sold to venture capitalist Schroder Ventures for £750m.

A further 28 sites, which were intended to house new Homebase stores, are being sold to Kingfisher, owner of DIY rival B&Q, for £219m.

Sainsbury's chief executive Sir Peter Davis told the BBC he hoped that the change in ownership for Homebase would not lead to job losses. Sir Peter put Homebase up for sale in August, saying the group needed to be set free to pursue expansion plans which included moves into continental Europe. 

But the food retailer decided not to fund the DIY division's expansion and chose instead to concentrate on revamping its food stores.

Sir Peter, who joined Sainsbury's in March, wants to arrest the decline in food market share which it is losing to rivals such as Tesco. He has a three-year recovery plan and aims to revamp up to 150 stores next year but also needs to find the cash to speed the process.

Completion of the sale is expected to take place in the first quarter of next year, subject to clearance by the European Commission. Homebase currently has 283 stores around the country and employs 17,000 people.

Schroders partner Charles Sherwood said the group was looking to expand the business, focusing on developing larger format stores more than twice the current average store size. Schroders will need to bring in a chief executive to replace Kate Swann, who is moving to catalogue retailer Argos.

To plug the gap, it has appointed John Lovering, a retail specialist who chairs a number of companies, including retailer Peacocks, as chairman and interim chief executive.

Sainsbury's sale of Homebase has taken longer than expected, with the suggestion that an initial £1.2bn price tag had dissuaded suitors. The widely expected announcement of the deal had little impact on Sainsbury's shares, which slipped 5p to 400p in early trading.

Homebase has struggled to keep up with market leader Kingfisher's B&Q.

In the UK, Homebase has been pushed into third position by the recent combination of Focus Do It All, Wickes and Great Mills - now owned by private equity group Duke Street Capital. Focus Do It All has about 16% of the market while Homebase has 13%.

Homebase made an operating profit of £65m last year and is expected to make upwards of £70m in the current year. It enjoyed like-for-like sales growth of 12.3% in the first quarter.

Source: Insight DIY Team