Bunnings parent Wesfarmers today announced it has agreed to divest the Homebase business to Hilco Capital for just £1, as it said the “risks associated with a turnaround don’t justify the additional investment and management required”.
Under the terms of the agreement, the buyer – a company associated with Hilco Capital - will acquire all Homebase assets, including the Homebase brand, its store network, freehold property, property leases and inventory for a nominal amount (£1). Restructuring specialist Hilco Capital has been involved in the turnaround of a number of major retail brands in the UK, including HMV, the UK arm of Staples and Habitat.
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."
Wesfarmers advises that it expects to record a loss of £200million to £230million in the Group’s 2018 full-year financial results, subject to completion and review by Ernst & Young.
As a result of the deal, the 24 Bunnings pilot stores that have been rolled out 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.
Former Kingfisher retail director Damian McGloughlin, who joined BUKI to head up the new management, will remain with the company and “continue to lead Homebase in delivering management’s turnaround plan”, Wesfarmers explained.
“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.”
The sale is expected to be completed by June 30, 2018.