In for $705m, out for £1: Wesfarmers abandons UK Bunnings disaster
Wesfarmers is abandoning its disastrous attempt to expand its Bunnings Warehouse chain into the United Kingdom and Ireland by selling the business for a single British pound.
The conglomerate said on Friday it will sell its British hardware business, including the Homebase chain it bought in 2016 and 24 pilot Bunnings stores it had opened in the country, to restructuring firm Hilco Capital. It expects to book a loss of between £200 million to £230 million ($325 million to $375 million) in its full-year results from the exit.
Wesfarmers had hoped to replicate the success of its earnings powerhouse hardware chain in the UK and Ireland, but instead ran up heavy losses after misreading the market and alienating Homebase's existing customers.
The company paid $705 million for Homebase in 2016, but wrote down the value of the venture by $1 billion in February.
'In the best interest of shareholders'
Wesfarmers managing director Rob Scott said a comprehensive review of Bunnings UK and Ireland (BUKI) concluded that the business was capable of returning profits over time, but a turnaround would require more cash to be ploughed into the business in the short term.
"The materiality of the opportunity and risks associated with a turnaround are not considered to justify the additional capital and management attention required from Bunnings and Wesfarmers," Mr Scott said.
“A divestment under the agreed terms is in the best interests of Wesfarmers’ shareholders and will support the ongoing reset and repositioning of the Homebase business."
Wesfarmers won’t be recouping any of its losses from the sale, with Hilco buying the business for the nominal figure of £1 ($1.60).
Getting out bruised, and hopeful
But Hilco will take over property leases and other liabilities worth over £1.8 billion which Wesfarmers could have been hit with had it decided to simply close the business, rather than hand it over to a new owner.
As a faint silver line on the horizon, Wesfarmers will receive 20 per cent of the proceeds if Hilco is able to revive Homebase's performance and sell it on to a third party at any point in the future.
"The investment has been disappointing, with the problems arising from poor execution post-acquisition being compounded by a deterioration in the macro environment and retail sector in the UK," Mr Scott said.
"While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value."
More to come