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Kingfisher to sell controlling stake in B&Q China

Europe’s biggest DIY group, Kingfisher, is selling a controlling stake in B&Q China after struggling to interest the country’s growing middle class in home improvement.

In a statement to investors, Kingfisher said it would sell a 70% stake in B&Q China to Beijing-based Wumei Holdings for £140m. The sale is the first big decision by Kingfisher’s new chief executive Véronique Laury, who took over from Sir Ian Cheshire at the start of December.

The agreement follows Kingfisher’s announcement in March that it was looking for a strategic partner, because it “needed to be much more Chinese in China”.

B&Q opened its first store in China in 1999 and now has 39 outlets employing 3,000 people, but the London-listed group struggled to transplant its business model to a country where doing odd jobs around the house is not seen as a leisure activity.

Chinese consumers have not embraced DIY, partly because low wages mean there is a plentiful supply of people to do household jobs. The US chain Home Depot shut its big box stores in 2012, after finding not enough Chinese consumers had caught the DIY bug.

Kingfisher had adapted its business model to the “Do it for Me” culture by offering apartment decorating, kitchen and bathroom-fitting services to the owners of new but unfinished apartments. However, the group saw sales fall sharply after Chinese authorities took action to cool the overheating property market. Kingfisher was keen to keep one foot in the Chinese market and the deal with Wumei is similar to the 50/50 partnership the DIY group has in Turkey.

The deal is expected to be agreed in the first half of 2015, subject to the approval of the Chinese Ministry of Commerce. Wumei Holdings, founded in 1994, is one of China’s largest retail chains, with around 650 supermarkets and 10 department stores operating under a variety of brand names.

Kingfisher’s decision to scale back in China allows it to concentrate on established markets in western Europe. The UK and Ireland have been performing well as a result of a revival of the housing market, but France – the company’s single biggest market – has been struggling amid weak demand, forcing the company to slash prices.

Laury said: “I am delighted to have found a strong retail partner who will help us to release the financial value of our business in China. This will enable us to focus our financial resources and management talent on the large and attractive European home improvement market.”

Retail analyst Nick Bubb said it looked as if Kingfisher had got “a pretty good price” for its stake, but pointed out it had not revealed the level of property or debts in the business. He said: “The new Kingfisher CEO Véronique Laury is able to put her name to the deal, even though Ian Cheshire made the decision to pull out of China, but the persistent problems of the B&Q business in China were one of the biggest blackspots on his record as CEO, so perhaps it would be best to draw a veil over the whole affair and focus on the future.”

Source : Jennifer Rankin - The Guardian
http://www.theguardian.com/business/2014/dec/22/kingfisher-china-diy-bq

The full press release can be found below:

Kingfisher plc, Europe's leading home improvement retailer, today announces a binding agreement to sell a controlling 70% stake in its B&Q China business to Wumei Holdings Inc for a total cash consideration of £140 million. The agreement follows Kingfisher’s previous announcement of its plans to look for a strategic partner to help develop its B&Q business in China

The transaction is conditional on MOFCOM (Chinese Ministry of Commerce) approval and, if approved, is expected to close during the first half of next year.

Commenting on the announcement, Véronique Laury, Kingfisher's Group Chief Executive, said:

“I am delighted to have found a strong retail partner who will help us to release the financial value of our business in China. This will enable us to focus our financial resources and management talent on the large and attractive European home improvement market.”

Kingfisher plc is Europe’s leading home improvement retail group and the third largest in the world, with 1,176 stores in 11 countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. Kingfisher also operates the Koçtaş brand, a 50% joint venture in Turkey with the Koç Group.

B&Q China opened its first store in China in 1999 and now has 39 stores in the market, with over 3,000 employees.

Wumei Holdings Inc is one of China’s leading retail chain store operators. It was founded in 1994 and is headquartered in Beijing. The retail network comprises around 650 supermarkets and 10 department stores in northern, eastern and western China with a sales area of over 1.4m sqm. It is the controlling shareholder of Hong Kong listed Wumart Stores Inc and Shanghai listed Xinhua Department Store. Its brands include Wumart, Jingbei Shopping Mall, Merrymart, Xinhua Department Store, Zhejiang Gongxiao and Laodafang.

UBS Investment Bank acted as financial adviser to Kingfisher on the transaction and Hogan Lovells acted as legal adviser.

Source : Kingfisher PLC
http://www.kingfisher.com/index.asp?pageid=55&newsid=1084

22 December 2014

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