Wesfarmers to buy UK’s Homebase in push to expand overseas foothold

Deal is the first step in the company’s entry into the UK and Ireland

Wesfarmers Ltd will buy Homebase in the UK for £340 million ($485 million; Dh1.77 billion) to secure an overseas foothold for its home-improvements business on the same day its primary Australian competitor revealed plans to exit hardware retailing.

The acquisition from Home Retail Group Plc will give Wesfarmers, which runs the Bunnings branded home-improvement business, 265 UK stores that had revenue of £1.46 billion for the 12 months ended August 29, the Perth, Western Australiabased company said in a statement to the stock exchange.

“Bunnings is well placed to unlock value from the Homebase business and has a proven track record in delivering growth both organically and through acquisition,” Wesfarmers managing director Richard Goyder said in the statement.

Immaterial earnings effect

The purchase, expected to be completed in the first quarter of 2016, will have an “immaterial effect” on Wesfarmers’ earnings per share and return on equity initially, and add to profits from the third year following the acquisition, the company said. The deal is the first step in the entry into the UK and Ireland with a £500 million investment planned to expand Bunnings there over three to five years, Wesfarmers said.

The purchase will be funded through British pound-denominated debt facilities, it said.

Wesfarmers shares climbed 3.3 per cent to A$40.60 (Dh102.27) at 11.27am in Sydney, heading for the biggest gain in a month. The benchmark S&P/ASX200 index was down 0.09 per cent.

“Our plan is to build a Bunnings offer and launch a Bunnings warehouse in the UK and Ireland market,” John Gillam, CEO of Bunnings, said in response to a question on Bunnings low-price focus in Australia compared with Homebase’s premium pricing. “It is all about taking the things we know and tailoring those for the UK market.”

Wesfarmers plans to develop Bunnings Warehouse pilot stores in the first year and learn like “crazy” before expanding, he said. Competitor Woolworths Ltd. said it planned to exit Masters — its unprofitable Australian home-improvements joint venture With Lowe’s Cos.

Wesfarmer’s move to acquire Homebase, geared at securing an overseas foothold for its home-improvements business, came on the same day its primary Australian competitor revealed plans to exit hardware retailing.