Wesfarmers acquires Homebase, the DIY unit of UK-listed Home Retail, for £340m

Wesfarmers, the Australian retail-to-coal mining conglomerate, has acquired Homebase, the do-it-yourself unit of UK-listed Home Retail. The deal, which is priced at £340m (€445.7m, $485.5m), marks Wesfarmers's first acquisition outside Australia and New Zealand.

The Australian conglomerate had last week offered A$700m (£339.1m) for the Homebase chain which has a portfolio of 265 stores across the UK, after the latter rebuffed a bid from J Sainsbury. Wesfarmers said the initial focus would be to improve the performance of Homebase, after which it would build a "new Bunnings-branded business over three to five years".

In 1914, Wesfarmers started as a Western Australian farmers' co-operative. It has now, however, grown to become one of Australia's largest companies owning coal mines and chemical plants, department stores, home improvement retailer, Bunnings and Australia's second-biggest supermarket, Coles.

Its Bunnings business is the largest in Australia in that segment by market share with operating margins equal to about 10 times that of Homebase. Last year's A$53m operating profit would jump to more than A$500m, if Homebase gets to Bunnings's main level, based on current operations.

The increase in sales could be much higher over time, not only because the UK is a much bigger market than Australia but also because of the wider product offering by Bunnings, which encompasses both home goods and DIY, and the fact that it sells more to the building trade. These could be the reasons behind the acquisition, according to the Financial Times.

While Home Retail Group has not been too positive on the home improvement space and has been closing down stores over the past one year, like-for-like sales at Homebase rose 5% in the 18 weeks to 2 January, according to a recent trading update.

Sainsbury's would be happy to see the deal as it has earlier shown interest in acquiring Home Retail's Argos division while not being too keen on its Homebase division.