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Wesfarmers Ltd (WES) Puts Homebase On The Chopping Block

Wesfarmers Ltd (ASX: WES) shareholders heard the news today that the diversified retail company is going to sell its Homebase business in the UK & Ireland to Hilco Capital.

Wesfarmers is the business that runs Bunnings, Officeworks, Target, Kmart and Coles. Wesfarmers has already announced plans to sell most of Coles.

Homebase Failure

Homebase was acquired by Wesfarmers in 2016 from Home Retail Group for £340 million. Today, the company announced that it is selling Homebase and expects to record a loss on disposal of £200 million to £230 million.

Wesfarmers has previously had to account for a $795 million impairment against Homebase’s goodwill and brand name, as well as $228 million for store closures, write-offs and tax write-downs.

Wesfarmers‘ Managing Director, Rob 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.”

Under the terms of the agreement, Hilco Capital will acquire all of Homebase’s assets including the brand, store network, freehold property, property leases and inventory. The 24 Bunnings pilot stores will convert to Homebase soon after the acquisition.

However, Wesfarmers will participate in a ‘value share mechanism’ where it would be entitled to 20% of any equity distributions from the business. This isn’t limited by time, so Wesfarmers could benefit from a profitable divestment in the long term.

Mr Scott acknowledged that the review into Homebase confirmed that while the business could be turned around, it would require further capital investment to support the turnaround. He said that the opportunity didn’t outweigh the risks.

He continued, “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.”

While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities. – Scott

The Wesfarmers share price is currently up 0.04% after initially starting the day down, according to Google Finance. 

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