Struggling DIY chain Homebase has been sold to retail restructuring firm Hilco for a £1 after only two years under the ownership by Australian giant Wesfamers
The Australian owners failed to turn around Homebase, reporting that 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’.
Despite its experience as owner of the largest DIY chain in Australia, Bunnings, Wesfarmers warned in February this year that Bunnings UK and Ireland (BUKI) was facing a £454m goodwill write-off as a result of the original 2016 acquisition. The company also issued a profits warning, projecting an underlying loss before interest and tax of £97m for HY2018, reflecting the poor trading performance of Homebase.
Wesfarmers expects to record a loss on disposal of £200m to £230m in the Group’s 2018 full-year financial results, subject to completion and review by E&Y.
Under the terms of the agreement, Hilco 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% 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.
The divestment is expected to be completed by 30 June 2018.
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.
‘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,’ Wesfarmers managing firector Rob Scott said.
‘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.’
In February, Wesfarmers brought in a new management team to run the UK operation, headed by managing director Damian McGloughlin who will remain at Homebase to oversee the turnaround plan.
Report by Sara White