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Wesfarmers MD talks about Homebase acquisition

Bunnings store CL 725 x 500

Wesfarmers managing director Richard Goyder discusses the Homebase acquisition and explains the long term value creation opportunity for Bunnings.

Acquisition overview
* Acquisition of 100 per cent of Home Retail Group plc’s (Home Retail Group) holding in Homebase for £340 million (A$705 million)¹
* Unanimously supported by the Board of Home Retail Group
* Expected to complete in the first quarter of calendar year 2016, subject to approval by Home Retail Group shareholders and its banking syndicate

Acquisition rationale
* £38 billion UK home improvement and garden market is an attractive and growing market
* Homebase delivers an established and scalable platform with stores that are the right size for the UK market and support warehouse merchandising and a low cost operating model
* Acquisition is the first step in a program which will invest in the Homebase team and reinvigorate core Homebase assets to build an exciting new Bunnings-branded business over three to five years
* Ability to improve existing Homebase performance in the short-term through operational improvement


Wesfarmers Limited has entered into an agreement to acquire Homebase from Home Retail Group for £340 million (A$705 million)¹. This follows the announcement on 14 January 2016 confirming that a conditional offer had been made to acquire Homebase. Homebase is the second largest home improvement and garden retailer in the United Kingdom (UK) and Ireland. Homebase reported revenue of £1,461.2 million for the 12 months ended 29 August 2015 and currently has 265 stores.

Wesfarmers Managing Director Richard Goyder said the acquisition of Homebase provides a long-term value creation opportunity for Bunnings which will complement the strong growth trajectory of the Australian and New Zealand business.

“Bunnings is well placed to unlock value from the Homebase business and has a proven track record in delivering growth both organically and through acquisition,” Mr Goyder said. “Our offer provides significant execution certainty and an attractive cash consideration to Home Retail Group shareholders.

“The £38 billion UK home improvement and garden market is a large and growing market with strong fundamentals. The opportunity to enter this attractive market through the acquisition of Homebase has been comprehensively researched and carefully considered by Wesfarmers and Bunnings. The Bunnings team has done a lot of work to make sure it understands the market and the opportunity, including having visited hundreds of stores, spending significant time researching the market and closely studying international retail expansions into the UK and other markets. Detailed due diligence has been completed and implementation and improvement planning is well advanced.”

Due to early transformation activity, the acquisition is expected initially to have an immaterial effect on Wesfarmers’ earnings per share and return on equity. From the third year post acquisition, the acquisition is projected to be progressively accretive reflecting long-term growth prospects.

Bunnings Managing Director John Gillam said the acquisition represents a compelling opportunity to enter the attractive UK home improvement and garden market.

“Homebase has an established and scalable store platform with strong representation in high density areas,” Mr Gillam said. “The stores are well-sized for the UK market and support warehouse merchandising and a low cost operating model.

“The acquisition is the first step in building a further growth platform for Bunnings with additional planned investment of approximately £500 million (A$1,037 million)¹ in the Homebase team and assets to build a new Bunnings-branded business over three to five years. We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and gardenoffer.”

Management structure
Following completion, a new management structure will be put in place at Bunnings to drive continued strong performance in the existing operations and effectively implement the Homebase acquisition plans.

John Gillam will be Chief Executive Officer of Bunnings, with management teams established in the two distinct operational regions. Key leadership appointments within the new Bunnings structure include:

Bunnings Australia and New Zealand
* Mike Schneider, Managing Director (currently Director of Store Operations)
* Clive Duncan, Chief Operating Officer (currently Director of Merchandising & Store Development)
* Justin Williams, Chief Financial Officer (currently General Manager Information Technology & Financial Services)

Bunnings UK and Ireland
*Peter (PJ) Davis, Managing Director (currently Chief Operating Officer)
* Rodney Boys, Finance Director (currently Chief Financial Officer)

Transaction funding, approval and timetable
The acquisition will be funded by new GBP-denominated debt facilities. Rating agencies Standard & Poor’s and Moody’s Investors Service have been updated on the transaction. Whilst no change is expected to the Group’s existing credit ratings (A- and A3 level respectively), the anticipated short-term impact on credit metrics may result in a change to the Group’s outlook.

The acquisition is subject to approval by Home Retail Group shareholders under the UK Financial Conduct Authority’s Listing Rules for Class 1 transactions. The Board of Home Retail Group has unanimously recommended the transaction to shareholders. Subject to the approval of Home Retail Group shareholders and its banking syndicate, transaction completion is expected by the end of the first quarter of calendar year 2016.

Lazard is acting as Wesfarmers’ financial advisor.

Source : EPRRetailNews.com
http://eprretailnews.com/2016/01/25/wesfarmers-managing-director-richard-goyder-on-homebase-acquisition-long-term-value-creation-opportunity-for-bunnings-7654321234567890/ 

26 January 2016

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Thank you for the excellent presentation that you gave at Woodbury Park on Thursday morning. It was very interesting and thought-provoking for our Retail members. The feedback has been excellent.

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Martin Elliott. Chief Executive - Home Hardware.
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