US giant targets B&Q DIY chain

HOME Depot, the world's biggest DIY retailer, has signalled talks on a takeover deal with B&Q owner Kingfisher - if the British chain is willing to dispose of its French business.

Kingfisher took full control of Castorama in France following a £2bn rights issue in 2002.

According to a well-placed source, the move was discussed at a meeting in London between Kingfisher chief executive Gerry Murphy, chairman Sir Francis Mackay and Bob Nardelli, Home Depot chairman and chief executive.

It is understood that Nardelli also made a presentation to the Kingfisher board.

Nardelli told Murphy and Mackay he was enthusiastic about Kingfisher's operations in China and the UK, where B&Q is the biggest DIY chain, but that Castorama was a stumbling block.

Strict French employment laws would make any proposals to change the operation difficult and Home Depot did not want its first foray into Europe to damage its brand.

However, disposing of Castorama would not be an easy option for Murphy and Mackay, who were behind the rights issue to buy the remaining 45% stake in Castorama three years ago.

The talks between Home Depot and Kingfisher took place on April 29 after Nardelli flew to London the previous day on a private plane and spent the night at the Dorchester Hotel in Park Lane.

Kingfisher, which was contacted by the Takeover Panel last week to clarify the position with Home Depot after shares rose 3.5% on takeover speculation, would not comment other than to say that the discussions were 'routine' talks between retailers about product and supply terms.

However, according to the source, Home Depot also floated the possibility of a joint venture between the two companies in China.

Kingfisher already has a firm foothold in China with about 50 stores and the US DIT giant is keen to establish a presence there too.

The talks with Home Depot DIY takeover bid were held two days after Kingfisher surprised the market with warning that profits were down 15% in the first quarter because of a slump at B&Q.

The company also announced plans to buy 22 Chinese stores from OBI, just as Home Depot said it was to raise up to $5 billion in loans for debt repayment, acquisitions and working capital. Last week, the US arm of investment bank Goldman Sachs, a financial adviser to Kingfisher, published a report arguing that a deal was 'strategically sound'. Home Depot's growth in terms of shop floor space is slowing in the United States, while Kingfisher has an emerging market presence, said the report.

Home Depot refused to comment.