John Colley of the Warwick Business School in Australia said at the weekend: "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.”
Writing on thehrdirector.com he added: “Entering a shrinking market through a weak third position was always going to be problematic and increasingly UK households now get someone else to do their DIY, who buy materials through traditional builders merchants.
“Assuming what works in the Australian DIY market will work in the UK with its different climate was a great leap in faith. Wesfarmers underestimated the costs of conversion to the Bunnings format, which does not seem to work.
“Then they fired the top 160 managers who knew anything about the UK market and replaced them with their own limited knowledge. Finally they delisted the top selling lines.
See the full comment from John Colley at: https://www.thehrdirector.com/business-news/economy/homebase-1/
Here is the statement from Wesfarmers issued on 25 May 2018:
Agreement to divest Homebase
Wesfarmers today announced it has agreed to divest the Homebase business in the United Kingdom and Ireland to a company associated with Hilco Capital.
Under the terms of the agreement, 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 24 Bunnings pilot stores will convert to the Homebase brand promptly following completion.
Wesfarmers will participate in a value share mechanism whereby it would be entitled to 20 per cent of any equity distributions from the business. This obligation is not limited by time, allowing Wesfarmers to participate in any profitable divestment of the business in the long-term.
Wesfarmers Managing Director Rob Scott said the agreement follows a comprehensive review of the Bunnings United Kingdom and Ireland (BUKI) business which considered a range of options to improve shareholder returns. “A divestment under the agreed terms is in the best interests of Wesfarmers’ shareholders and will support the ongoing reset and repositioning of the Homebase business,” Mr Scott said.
“While the review confirmed the business is capable of returning to profitability over time, further capital investment is necessary to support the turnaround. The materiality of the opportunity and risks associated with turnaround are not considered to justify the additional capital and management attention required from Bunnings and Wesfarmers.
“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. While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value.
“We acknowledge the past six months have been particularly challenging for the BUKI management and our team members in the UK and Ireland and we thank them sincerely for their hard work and commitment.
The operating performance of the business has improved in recent months under the new management team led by Damian McGloughlin and he will continue to lead Homebase in delivering management’s turnaround plan.
“We wish Damian and the team well during the transition and as they take the business into its next chapter under a new owner with a track record of retail turnaround in the UK.”
With the conclusion of the review, Wesfarmers advises that it expects to record a loss on disposal of £200 million to £230 million in the Group’s 2018 full-year financial results, subject to completion and review by Ernst & Young.
The divestment is expected to be completed by 30 June 2018.