Wesfarmers to divest from Bunnings UK
Wesfarmers will divest from its disastrous Bunnings UK & Ireland (BUKI) venture less than three years after buying the struggling Homebase chain, announcing on Friday that it has found a buyer for the business.
Hilco Capital, an investment firm that specialises in distressed assets, will acquire all Homebase assets – including the brand, store network, freehold property, leases and inventory.
Wesfarmers said it will record a loss of between £200 million (AUD$350m) and £230 million (AUD$406m) in the deal but will be eligible for 20 per cent of any equity that arises if Hilco sells the business down the track.
It believes this will allow it to participate in a possible profitable divestment of the business in the longer term.
The 24 Bunnings pilot stores that Wesfarmers has spent the last twelve months converting from Homebase in the UK will be reverted back after the transaction is completed.
Wesfarmers will offload more than £1 billion in lease obligations in the deal, which were cited to be a major barrier to exiting the market in February.
“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 director Rob Scott said on Friday.
Scott was due to report the findings of a review into the loss-making investment at a strategy day on 7 June, but after weeks of rumours that Wesfarmers was actively pursuing a sale the conglomerate opted to break the news to the market early.
“While the review confirmed the business is capable of returning to profitability over time, further capital investment is necessary to support the turnaround,” Scott said.
“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.”
Wesfarmers acquired the Homebase network in 2016 for £340 million (around AUD$700m) with the hope of transitioning it to the locally successful Bunnings format.
But after what Wesfarmers has admitted were several management blunders on its part, the operation racked up significant losses.
Wesfarmers booked a $795 million impairment on BUKI in February and posted $165 million in losses from the business in the first-half of fiscal 18.
Damian McGloughlin, who was brought in by Wesfarmers to steer a turnaround of BUKI following the departure of Peter ‘PJ’ Davis in February, will stay on at Homebase.
Hilco is the owner of Moores Furniture Group and Chapelle Jewellery in the UK and has a long history of buying, improving and selling off distressed assets globally.
Scott described the BUKI investment, which was undertaken under the watch of his predecessor Richard Goyder, as “disappointing” on Friday, saying it is important that Wesfarmers learned from the experience
“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,” Scott said.
The market has been critical of BUKI for months, with comparisons to rival Woolworths’ ill-fated Masters Home Improvement venture dogging the Perth-based conglomerate.
But Scott said the outcome should not discourage the Wesfarmers team from seeking out other investments.
“This should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value,” he said.
Wesfarmers is currently in the market for opportunities after announcing plans to spin-off its supermarket business Coles earlier this year.
The BUKI divestment is expected to be completed by 30 June.
Updated – 11:00 AEST
More to come.
This story first appeared on sister site Inside Retail Australia.