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Why Homebase sale is such good news for Kingfisher
Australian conglomerate Wesfarmers is selling Homebase for a nominal £1 to turnaround specialist Hilco Capital just two years after buying the business from Home Retail for £340m.
The Aussie firm wrongly assumed it could replicate the success of its Bunnings brand down under in the UK. Wesfarmers’s DIY disaster is supportive for hard-pressed Kingfisher (KGF), the over-spaced owner of the rival B&Q chain, whose unloved shares reacted positively to the news (25 May).
Wesfarmers’ ill-fated acquisition of Homebase has been bungled and Hilco is now taking the 255 store DIY specialist off its hands; 24 pilot Bunnings stores will revert back to the Homebase brand.
Even if Hilco intends to turn round Homebase rather than engineer a breakup, stores are expected to close, Homebase will now miss Bunnings’ buying clout in Asia (with implications for pricing) and support from key branded suppliers could soften under the new ownership structure.
Jefferies therefore argues the sale constitutes ‘very good news for Kingfisher. Ultimately, the risk ahead of today was that Wesfarmers would be irrational and back a significant investment to rebrand Homebase stores into Bunnings.
‘Today’s news should see B&Q’s biggest competitor (and arguably the only alternative to retail customers in the UK large-sheds DIY market, given Wickes’ squarely more trade oriented offering) become much more sensitive to short, and mid term, margin and cashflow challenges.’
The sale comes at a crucial time for Kingfisher, whose poor first quarter figures (24 May) reflected tough UK and French home improvement market conditions and dire weather in February and March, with like-for-like sales slumping by 4%. (JC)