Wesfarmers offers $706m for United Kingdom hardware business Homebase

Wesfarmers, which owns supermarket Coles and home improvement chain Bunnings in Australia, says it has completed due diligence on Homebase and transaction documents are being finalised.

Bunnings is the leading home improvement and outdoor living retailer in Australia and New Zealand.

Sources said on Wednesday that Wesfarmers and Home Retail were trying to finalise a deal in time for it to be announced alongside the United Kingdom company’s Christmas trading update on Thursday morning.

It appears that under the Bunnings banner the strategy would be to use what are said to be good-sized and well-located stores to expand the chain further in Britain.

Home Retail Group has confirmed it is in advanced talks over the potential sale of Homebase to Wesfarmers for GBP340m in cash.

WESFARMERS Limited has made a conditional offer to acquire Britain’s DIY chain Homebase. The chain generated operating profit of just £26.3 million in the year ended August 29, 2015, while Bunnings made A$1.1 billion of operating profit in its latest fiscal year, according to Wesfarmers.

It said the proposed sale of Homebase followed a review of the business in 2014, initiated by the board and the group’s then new chief executive, which introduced a three-year productivity plan that included improving store productivity, closing about a quarter of the shops, strengthening products and accelerating Homebase’s online capabilities.

“The existing Homebase performance will be enhanced in the short-term through operational improvement”.

The company said talks began in September and due diligence commenced under a confidentiality agreement in October, with a firm offer letter in November.

That deal – which went pear shaped thanks to the intervention of the global financial crisis – was one that financially damaged Wesfarmers for years, until the businesses, including Coles supermarkets, Kmart and Target were ultimately turned around.

“Homebase delivers an established and scalable platform”, Wesfarmers said in the statement.

The stock has jumped by more than 50% since Home Retail’s rejection of the Sainsbury’s bid was revealed.

Earlier this month, Sainsbury’s said that Home Retail had rejected its bid to buy the Argos chain.

Home Retail said total sales for Argos in the 18 weeks to January 2 rose 0.9%, though like-for-like sales fell 2.2%, with the group’s new digital concession locations the main contributor to the sales growth.

Now the British home improvement market is quite fragmented and competitive and Homebase sits as the number two or three operator, with the largest in the market being B&Q – whose parent Kingfisher plc also operates home improvement brands across Europe.