Wesfarmers has sold the UK DIY chain Homebase after just two years of ownership.
The Australian conglomerate sold Bunnings UK and Ireland – which includes the Homebase brand and 24 Bunnings pilot stores – to turnaround specialist Hilco Capital, reportedly for just £1 (AU$1.8).
The company has been criticised for failing to understand the differences between the DIY markets in Australia and the UK, and the initial acquisition was described as “one of the great all-time disasters”.
Listing a catalogue of errors, John Colley, professor of practice in strategy at Warwick Business School, said Wesfarmers assumed what worked in the Australian market would work in the UK, underestimated the costs of converting shops, fired 160 experienced managers without replacing their knowledge of the UK market and delisted top-selling lines.
“This is one of the great all time disasters in the M&A world and it is against some very stiff competition. Both the strategy and the execution were disasters,” he said.
Wesfarmers said it expects to incur losses of between £200-230m (AU$353-406m) after the sale is complete, however Colley said firm’s costs and risk underwritings were likely add up to “far more than the £340m they paid for it, plus the additional £200m of provision on top of the write-off on the purchase price”.
“One suspects the Bunnings CEO's position may be under pressure,” he added.
Rob Scott, Wesfarmers managing director, said a review of the business before its sale showed it was capable of returning to profit, but that Wesfarmers could not justify the capital investment and management attention needed.
“Homebase was acquired by Wesfarmers in 2016. The investment has been disappointing, with the problems arising from poor execution post-acquisition being compounded by a deterioration in the macro environment and retail sector in the UK,” he said.
The sale is expected to be completed by 30 June 2018.
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