Wesfarmers Exits The UK With Homebase Sell-Off

Wesfarmers is selling U.K. home improvement chain Homebase just two years after buying it, according to news from CNBC. The question now is what future acquisitions face the powerful Australian retail conglomerate.

London-based turnaround specialist Hilco will buy the 255-store U.K. DIY chain.

Wesfarmers spent AUD$700 million to purchase the chain two years ago and spent AUD$700 million in rebranding. But today, Wesfarmers admits it mishandled the takeover and transition, with basic blocking and tackling failures like not properly stocking the store for winter in the U.K.

“This and the exit from 80 percent of Coles is freeing up funding for the next big acquisition, but that really will have to be scrutinized very closely after this experience,” said David Walker, an analyst at Clime Asset Management. “I don’t expect anyone will trust them over the next one unless it’s such a simply obvious outstanding opportunity that it doesn’t require scrutiny.”

Wesfarmers has had some domestic success with its home market DIY home improvement business Bunnings, which meant the offshore expansion initially enjoyed broad support among investors, who assumed that domestic success would be indicative of success in a new market.

But in the U.K. — absent brand recognition — Bunnings saw declining earnings, and after an attempted renaming to Homebase didn’t do much to move the margin lines, Wesfarmers took a massive write-off this year on the assets.

The U.K. market proved to be “very competitive, (and) the macro and the retail conditions in the U.K. are quite challenging,” CEO Rob Scott, who took the role a year after the Homebase purchase, said on a media call on Friday.

When asked about the prospect of future acquisitions and unstable investor trust, Scott remained positive, saying he hoped “the action that we’ve taken today demonstrates the capability of our team to act decisively and diligently to make the right capital allocation decisions.”