Wesfarmers approach potential buyers as Homebase sell-off looks likely

Wesfarmers the largest company in Australia and owner of the 250 store DIY chain Homebase is understood to be in talks with potential buyers, as it looks to extract itself from a disastrous UK venture.

The Guardian - Homebase is the most disastrous retail acquisition in the UK ever

The company paid £340m for the Homebase chain in February 2016 and in just two years has taken the business from a £28m annual profit to a loss of £97m in just six months.

Sky News ‎has learnt that Wesfarmers is currently working with Lazard, the investment bankers to review a range of options for the future of Homebase, with the most likely being a sale of the entire business including the remaining 230 Homebase stores and the 24 branches that have been converted to Bunnings. In the UK, the company currently employs over 12,000 people, the majority of which still work in the Homebase chain and at their Head Office based in Milton Keynes.

‎Lazard's involvement in the potential sale of Homebase is particularly pertinent because of its advisory role in Wesfarmers' purchase of Homebase in early 2016 and in the last two weeks, it is understood they have contacted a range of potential new owners which Insight DIY believes may include The Range and B&M Bargains.

On 7th June 2018 at their annual Strategy Day, Wesfarmers were due to update the Australian Stock Exchange and investors on the outcome of their strategic review of Homebase. However, it is understood that the poor weather in February and March has resulted in a further decline in sales (which were previously running at -15% year on year) that has ultimately ruined any appetite Wesfarmers had for keeping the business.

On what traditionally should be one of the busiest weekends for Home Improvement and Gardening, potential buyers and competitors will now be circling the stricken chain to review what if anything they're prepared to offer to Wesfarmers. Our own analysis has identified 21 stores that Kingfisher may be interested in acquiring for B&Q and 25 that Travis Perkins could be interested in for Wickes. If you'd like more information on this analysis, please contact our Managing Director Steve Collinge at Steve@irg.co.uk

Back in 2017, when they opened the first trial store in St.Albans, Wesfarmers had bold ambitions to take on B&Q and Wickes in Britain and beat them at their own game. However, their strategy has backfired spectacularly in the last 18 months‎, forcing it to write off more than £500m of 'significant items' relating to Homebase in the Groups first half results including:-

• Non-cash impairment of £454 million before tax, with £444 million to be recorded against goodwill recognised on the acquisition of Homebase and £10 million against the remaining book value of the Homebase brand name.
• Stock write-downs of £37 million, relating to excess, unsuitable and display stock, and store closure provisions of £40 million.
• A write-down of BUKI deferred tax assets of £53 million, reflecting a more conservative outlook for the business, to be reflected in the Group’s income tax expense. 

Following the acquisition, the company dumped 160 senior and middle managers at Homebase, replacing the board with an almost 100% Australian line up, who began managing the UK company exactly as they had managed Bunnings Warehouse back in Australia and New Zealand. Rather than learning over time, they got it completely wrong and error after error lead to a dramatic decline in the performance of the company.

On 23rd February, we wrote the article '100 Days to save Homebase', which you can read by clicking on this link.

Source: Steve Collinge and the Insight DIY Team

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