Home Retail Group confirmed yesterday (14 January) that it has been in talks with Wesfarmers about a bid for Homebase for around £340m. That deal would see Wesfarmers take on the entire Homebase business, including all its stores and distribution centres. Product brands owned by HRG including Habitat are not included but could be licensed by Wesfarmers for a year.

Wesfarmers is one of Australia’s biggest companies and owns, among others, supermarket brand Coles as well as department stores Target and Kmart. It is also the owner of Bunnings Warehouse, a home improvement and outdoor products retailer that sells to both commercial and personal customers in Australia and New Zealand.

It is the synergies with Bunnings that have made the Homebase purchase  desirable. Wesfarmers sees an opportunity to expand into the UK using the acquisition.

Getting rid of the homebase brand

Yet it apparently doesn’t plan to use the Homebase brand. Instead Wesfarmers wants to bring the Bunnings brand to the UK.

“The acquisition would be the first step in a programme which would invest in the Homebase team and reinvigorate core Homebase assets to build an exciting new Bunnings-branded business over three to five years,” Wesfarmers said in a statement.

“The existing Homebase performance will be enhanced in the short-term through operational improvement.”

Bunnings is a brand that no-one in the UK has heard of while Homebase has a near 40-year history in the country. Founded in 1979 by Sainsbury’s and Belgian retailer GB-Inno-BM, it now has more than 300 stores.

According to YouGov BrandIndex, awareness of the Homebase brand is above 90% among the British public and it is one of the top 10 ‘general retail’ brands.

That is not to say there are not challenges at the company. Homebase has been forced to sell off a number of unprofitable stores and invested in a number of rounds of cost-cutting.

Yet sales at established stores were up 5% over the crucial Christmas period.

The future of Argos

HRG believes the sale of Homebase is the “right step” for all parties. While cautioning that no deal has yet been finalised, CEO John Walden says: “This deal would represent good value for shareholders and a growth opportunity for the Homebase business and its colleagues.

“The sale would allow the group to focus on Argos and its transformation plan, with an improved balance sheet and financial position, which I believe represents an even greater opportunity for building long-term shareholder value.”

Yet the future of Argos is also unclear. Sainsbury’s launched a bid for HRG last November but has since made clear its interest lies with Argos not Homebase. The sale of Homebase would presumably make a move for HRG more attractive.

Under Takeover Panel rules, Sainsbury’s has until 2 February to come back with another offer. But Walden was keen to highlight on a press call yesterday (14 January) that there no offer for HRG “at the moment” and that HRG does not have to sell Argos.

“I genuinely have no idea if the sale of Homebase makes an offer from Sainsbury’s more or less likely. We don’t have an offer at the moment. We had to pursue Homebase because it was in the best interests of the business and we can’t count on possible interest from Sainsbury’s,” he said.

“But we are very pleased and confident with what Argos has developed. There are trend affecting us – high street footfall, shift from high street to digital sales, electricals sales – but our strategy is playing into these trends.”