Home Retail Group has entered into a share purchase agreement to sell Homebase to Bunnings, a subsidiary of Wesfarmers, for £340m.
Home Retail Group is a leading UK home and general merchandise retailer with sales of around £5.7 billion in the financial year to 28 February 2015. It sells products under three distinct and complementary retail brands: Argos, Homebase and Habitat. The Group employs around 47,000 colleagues across the business.
Wesfarmers is a diversified conglomerate listed on the Australian Securities Exchange with a market capitalisation of approximately A$44 billion.
Headquartered in Western Australia, its business operations cover supermarkets, liquor, hotels and convenience; home improvement and office supplies; department stores; and an industrials division which has businesses in chemicals, energy and fertilisers, coal, and industrial and safety products.
It is Australia’s largest private sector employer with approximately 210,000 employees. The group incorporates Bunnings, a leading home improvement and outdoor living retailer in Australia and New Zealand, with revenue of A$9.5 billion in the year to 30 June 2015.
Under the share purchase agreement, Wesfarmers will acquire the entire Homebase business, including all its stores and dedicated distribution centres. Product brands owned by the Group, such as Habitat, Schrieber and Hygena will be excluded from the sale, but some of these brands will be licensed for use by Homebase for one year.
In a statement, Home Retail Group said the transaction represents good value for shareholders and will enable the group to focus on the ongoing Transformation Plan of Argos.
The Group intends to return net cash proceeds of approximately £200m to shareholders, after taking account of payments totalling £50m to the Home Retail Group Pension Scheme, and transaction, separation and restructuring costs of approximately £75m.
Home Retail Group chairman John Coombe said: “We are very pleased to have reached agreement with Wesfarmers regarding the sale of Homebase.
“We believe that this is the best deal for shareholders and for the business. Wesfarmers is an experienced and successful retailer with exciting plans to invest in and grow their presence in the UK through Homebase.
“This transaction crystallises value for our shareholders from our ownership of Homebase and specifically the work that we have been doing through the Productivity Plan. Following completion of this transaction, the board will remain focused on the continuing transformation of our Argos business and the options for delivering shareholder value, supported by a strong overall financial position.”
The proposed sale of Homebase follows from a review of the business in 2014, initiated by the Board and the Group’s then-new chief executive, who introduced a 3-year Productivity Plan that included improving store productivity, closing approximately 25% of the store estate, strengthening customer propositions and accelerating Homebase’s digital capabilities.
The company said significant progress has been made against the Productivity Plan since then, including ‘the substantial completion of the programme to close underperforming stores, promotion and range improvements to drive positive trade, significant growth in digital sales, and an energised new leadership’. It said: ‘Homebase is on track to become a smaller, stronger business which is better positioned to support future investment and realise its potential for greater growth.’
Home Retail Group and Wesfarmers began discussions in September, due diligence commenced under a confidentiality agreement in October, and Wesfarmers provided the Group with a firm offer letter in November.
Home Retail Group said the board ‘is cognisant of the value created in Homebase over a short period through the successful progress on the Productivity Plan, as well as the investment, management attention and other resources required to help grow Homebase further.
‘Additionally, the board continues to believe that the Argos Transformation Plan is the Group’s greatest potential source of shareholder value, and its successful execution will require focus and resources. The Productivity Plan preserved the option to sell Homebase in the event that circumstances proved appropriate’.
In October 2012 Argos outlined a five-year Transformation Plan to reinvent itself as a digital retail leader, transforming from a catalogue-led business to a digitally-led business.
Homebase was founded in 1979 and was acquired by GUS plc in 2002. The Homebase business was subsequently demerged from GUS plc as part of the Home Retail Group in 2006 and has grown to a leading home and garden improvement retailer. The business carries out approximately 60 million customer transactions a year, selling around 38,000 products for the home and garden as well as offering installation services and DIY advice. It currently has 265 large, out-of-town stores throughout the UK and Republic of Ireland and a growing internet offering.
In the 26 weeks ended 29 August 2015, Homebase generated revenues of £816.4m, and benchmark operating profit of £34.3m. The business employed an average of 15,000 employees over the 26-week period. As at 29 August 2015, gross assets of Homebase were £880.4m.