Wesfarmers Limited (ASX:WES) confirmed in an announcement to the ASX that it has proposed a conditional offer to acquire a UK based company named Homebase which is a subsidiary of Home Retail Group plc (LSE:HOME).
Wesfarmers has offered a cash consideration of £340 million or A$699 million to acquire the second largest home improvement and garden retailer in the UK and Ireland. Homebase owns 265 stores and earned £1,416.2 million in revenue for the 12 months ended 29 August 2015.
Wesfarmers and Home Retail Group initiated discussions in September 2015, which led to the commencement of due diligence processes being undertaken by both parties who entered into a confidentiality agreement in October 2015. The companies signed an exclusivity agreement in early December 2015 upon successful completion of the due diligence work. The documentation is currently in the process of being finalised and hence there is no certainty that the offer will turn into an agreed transaction.
The acquisition was sought after Wesfarmers established and analysed the strategic rationale of the deal. Wesfarmers found that the UK home improvement and garden market is an attractive and growing market. Moreover, Homebase is capable of delivering an established and scalable platform with stores that are of the optimum size for the UK market and conventional support warehouse merchandising along with a low cost operating model.
The Australian counterpart sees the acquisition as a first step in the program as it eyes to reinvigorate core assets of Homebase and build a new Bunnings-branded business over the coming three to five years. It also aims to improve operational performance of Homebase in the short-term.
Home Improvement sales thrive in Australia
Wesfarmers provided a retail sales update for the 1Q16 period in October 2015. The company reported that total sales for the quarter in its home improvement department increased 11.6 percent over the pcp. The group’s home improvement and office supplies managing director John Gillam said that the strong results were the effect of the contributions from each growth driver in Bunnings’ strategic agenda. He further commented on the strategy implemented on Bunnings: “Our work creating more value, improving experience and extending our brand reach is resonating well with consumer and commercial customers.”
Author: Imran Valibhoy
Jan 14, 2016
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.