Wesfarmers acquires Homebase for £340m

Wesfarmers has entered into an agreement to acquire Homebase from Home Retail Group for £340 million.

The deal follows a conditional offer put forward by the Australian retail group that was announced on January 14.

The company already owns Bunnings, an Australian and New Zealand home improvement and outdoor living retailer, with revenue of A$9.5bn (around £4.6bn) and earnings before tax of A$1.1bn.

Wesfarmers managing director Richard Goyder said the acquisition of Homebase would complement the strong growth trajectory of the Australian and New Zealand business.

“The £38bn UK home improvement and garden market is a large and growing market with strong fundamentals,” said Mr Goyder. “The opportunity to enter this attractive market through the acquisition of Homebase has been comprehensively researched and carefully considered by Wesfarmers and Bunnings. The Bunnings team has done a lot of work to make sure it understands the market and the opportunity, including having visited hundreds of stores, spending significant time researching the market and closely studying international retail expansions into the UK and other markets. Detailed due diligence has been completed and implementation and improvement planning is well advanced.”

The acquisition is subject to approval by Home Retail Group shareholders. The board of Home Retail Group is said to have unanimously recommended the transaction to shareholders.

Completion of the deal is expected by the end of the first quarter of 2016.

Following completion, a new management structure will be put in place at Bunnings to drive continued performance in existing operations and implement the Homebase acquisition plans.

Peter Davis, currently chief operating officer, will be appointed as Bunnings managing director in the UK and Ireland and Rodney Boys, currently chief financial officer, will be its finance director.

Bunnings managing director John Gillam said the acquisition represents a “compelling opportunity to enter the attractive UK home improvement and garden market”.

“Homebase has an established and scalable store platform with strong representation in high-density areas,” added Mr Gillam. “The stores are well-sized for the UK market and support warehouse merchandising and a low-cost operating model.

“The acquisition is the first step in building a further growth platform for Bunnings with additional planned investment of approximately £500m in the Homebase team and assets to build a new Bunnings-branded business over three to five years. We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and garden offer.”

Wesfarmers said it initially expects the acquisition to have an immaterial effect on its earnings per share and return on equity.

In November 2015, Sainsbury’s put in a bid of £1bn to buy the UK retail group. Home Retail Group chief executive John Walden rejected it as being “opportunistic”.

Argos’s future is now unclear and, despite rejecting the takeover, Walden hasn’t ruled out an affiliation, telling The Sunday Times newspaper it’s “certainly something we and the board would consider”.