May 25, 2018 / 12:36 AM / 24 days ago

Wesfarmers' two-year UK foray ends with sale of troubled home improvement chain

SYDNEY (Reuters) - Australian retail conglomerate Wesfarmers (WES.AX) is selling UK home improvement chain Homebase for a nominal 1 pound just two years after buying it, ending an embarrassing offshore adventure that cost it $1 billion and sowing doubts about its future investments.

FILE PHOTO - A closed down Homebase store is seen in Ashford, south east England May 1, 2013. REUTERS/Luke MacGregor/File Photo

The owner of Australian No. 2 supermarket Coles, Kmart and Target said London-based turnaround specialist Hilco will buy its 255-store UK DIY chain. It did not disclose a price, but said the UK exit would bring an up to 230 million pound loss this year.

After paying A$700 million (396 million pounds) for Homebase in 2016 and then launching a $700 million rebranding, Wesfarmers took a $1 billion write off this year, admitting it bungled the takeover with basic errors like failing to stock its stores for the chilly UK winter.

Like several other Australian companies, Wesfarmers failed to replicate its domestic success in the UK by misjudging that market, and the failed deal raises questions about the company’s new strategy of divesting Coles to pay for higher-growth investments.

“This and the exit from 80 percent of Coles is freeing up funding for the next big acquisition, but that really will have to be scrutinised very closely after this experience,” said David Walker, an analyst at Clime Asset Management.

“I don’t expect anyone will trust them over the next one unless it’s such a simply obvious outstanding opportunity that it doesn’t require scrutiny.”

    Wesfarmers shares were up nearly 1 percent in a flat overall market .

    The decision by a former Wesfarmers CEO to take the company’s Australian home improvement business, Bunnings, offshore met broad investor support initially, given its long run of double-digit profit growth spurred by an explosion of home improvement television shows.

    But the high brand recognition of Bunnings in Australia amounted to little in its new country, and soon Wesfarmers was reporting declining earnings contributions from renamed Homebase, before writing off the asset completely this year.

    Wesfarmers made several “self-induced” blunders with Homebase, including dropping popular lines for kitchens and bathrooms and underestimating winter demand for a range of items from heaters to cleaning and storage, CEO Rob Scott said in February this year.

    The UK market proved to be “very competitive (and) the macro and the retail conditions in the UK are quite challenging”, Scott, who took the role a year after the Homebase purchase, said on a media call on Friday.

    Asked how investors could trust Wesfarmers with future acquisitions, Scott said he hoped “the action that we’ve taken today demonstrates the capability of our team to act decisively and diligently to make the right capital allocation decisions”.

    Reporting by Byron Kaye in SYDNEY and Ambar Warrick in BENGALURU; Editing by Muralikumar Anantharaman

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