Wesfarmers Limited (ASX: WES)

Move to curb the losses from Homebase business: Wesfarmers, whose objective is to deliver satisfactory returns to shareholders over the long term, recently announced that it has agreed to divest the Homebase business in the United Kingdom and Ireland to a company associated with Hilco Capital. The terms said that the buyer will acquire all Homebase assets, including the Homebase brand, its store network, freehold property, property leases and inventory for a nominal amount. The Group will participate in a value share mechanism whereby it would be entitled to 20 per cent of any equity distributions from the business. The Group will review this agreement of the Bunnings United Kingdom and Ireland (BUKI) business comprehensively as it considers a range of options to improve shareholder returns.

According to the Board, this disinvestment will be in the best interest of Wesfarmers’ shareholders and will support the ongoing reset and repositioning of the Homebase business. After the review, it came to the notice that the business was capable of returning to profitability over time but for this, a further capital investment will be needed to support the turnaround. Moreover, the need of the additional capital and management was not judged on the basis of the materiality of the opportunity and risks associated with the turnaround.


Bunnings performance (Source: Company Reports)

Once the transaction gets completed, the 24 Bunnings pilot stores will be converted to the Homebase brand. Past six months have been particularly challenging for the BUKI management and operating performance of the business has improved in recent months under the new management.  The Group aims to underpin many opportunities to deliver superior returns from investment in existing growth businesses while leveraging assets & capabilities in adjacent & new opportunities. The Group is already targeting a higher capital weighting toward businesses with strong earnings growth prospects. Since the start of the year, the stock was up by 1.44 per cent and by 5.25 per cent in last one month. The stock is inching towards its 52-week high level and looks “Expensive” at the current market price of $45.52.

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