Homebase offloaded for £1 by Aussie owner Wesfarmers after it admits mistakes

Australia’s retail giant Wesfarmers on Friday walked away with its tail between its legs after it was forced to sell DIY chain Homebase for just £1, ending its calamitous two-year foray into the UK.

Wesfarmers, which forked out £340 million for the 250-store chain in 2016, is set to lose as much as £230 million in what it described as a “bungled” takeover.

Homebase on Friday was bought by Hilco, the turnaround specialist, which bought music retailer HMV out of administration in 2013. However, analysts fear that move will lead to store closure and job losses, or even a break-up of the chain. “Hilco’s typical modus operandi involves downsizing to some degree or another,” said Ameet Patel, an analyst at Northern Trust Capital Markets.

The 24 stores that had been rebranded as Bunnings — Wesfarmer’s brand in Australia — will become Homebase again. The business, which has 11,000 staff, will be run by Damian McGloughlin, a former executive at rival DIY chain B&Q. Wesfarmers admitted to several “self-induced” mistakes after it dropped popular kitchen and bathroom products or didn’t have enough stock.

“The investment has been disappointing with the problems arising from poor execution post-acquisition,” admitted Wesfarmers managing director Rob Scott.

In April, Homebase said that sales fell 13.5% to £211 million for the three months to end of March.

Wesfarmer’s total losses since buying Homebase come to almost £800 million after the conglomerate wrote down the value of its UK arm by A$1 billion (£570 million) in February. “The board should have been able to detect that something was not right here,” said David Errington, an analyst at Bank of America Merrill Lynch. “Where does the buck stop and who pays for losing [the money]?”

Wesfarmers, which also owns Australia’s second-biggest grocer, will be entitled to 20% of any future sale of the business, which has 22 London stores.

But not everyone stands to lose. Kingfisher, the owner of B&Q and Screwfix, could benefit from the disruption at Homebase, one of its biggest competitors. Its shares rose 4% to 309p today after taking a hit from a downbeat trading update yesterday.

James Grzinic at Jefferies said: “This is very good news for Kingfisher. Today should see Homebase become much more sensitive to short, and mid-term, margin and cash flow challenges.”