Wesfarmers has been in secret talks to buy Homebase from its parent company, Home Retail, since September. The Aussie conglomerate was forced to confirm it had examined the Homebase books and signed an exclusivity agreement after details of the deal leaked in London overnight. Bunnings is the dominant home improvement retailer in Australia and Wesfarmers hopes to replicate its success in Britain. Analysts advise the Coles supermarket owner to meticulously put together the right team with the man
nagement team and the skills of experienced retailers such as Ian McLeod and John Durkan as well as not assume it will have the same success as in the UK.
Woolworths faltered because its team was not right while US giant Wal-Mart faltered because it did not have enough insight into new offshore markets and consumer requirements.
Morningstar analyst Daniel Mueller said Homebase’s operating margins had fallen in the past decade, while Bunnings had a healthy 11 per cent.
“There is potential for a large prize for Wesfarmers management if they can operate it as well as they do with Bunnings in Australia,” he said.
“There is a lot of potential for margin uplift on any sales growth it can generate.”
However, he said Britain’s hardware sector was more competitive than Australia’s and Wesfarmers would have to adapt to different consumer preferences and supply dynamics in the UK. One analysts was quoted as saying, “They’ve done a good job, but they haven’t been under the pressure that you are as number two in the market.”
The growing UK home improvement market is concentrated between three major players: Kingfisher, which has a 39 per cent market share; Homebase, with 12.5 per cent; and Travis Perkins, with 10.5 per cent.
This breakdown of the sector is based on market research group Mintel’s £11 billion valuation of the UK home improvement market.
However Kingfisher’s valuation pegs the market at closer to £40 billion, which significantly reduces the percentage share of each major player.
Home Retail has said it wants to sell Homebase so it can focus on its Argos retail business, which contributes about six times as much operating profit as the DYI chain.
British supermarket giant Sainsbury’s had approached Home Retail in November to buy the entire business, with its interest mainly on Argos.
The offer was rejected by Home Retail but Sainsbury’s has until February 2 to decide whether to make another bid. However, analysts don’t believe the supermarket giant is interested in taking on Homebase as part of the deal.
Shares in Wesfarmers closed 55 cents, or 1.4 per cent, lower at $39.40 amid wider market falls.
AAP
