May 25, 2018

Wesfarmers locks in $1bn of losses as it sells Homebase

Wesfarmers has sold the troubled Homebase retail hardware chain to Hilco Capital, a distressed debt investor, for a nominal sum and is expected to book a further £200m-£230m loss on its disastrous foray into the UK. Under the agreement, Hilco will buy all Homebase assets, including the brand, freehold property, inventory and up to £1bn in property leases in a deal that marks the Australian conglomerate's retreat from its first major overseas expansion. Wesfarmers will participate in a value share mechanism with Hilco, which will entitle it to 20 per cent of any equity generated from a sale of the business in the event of a successful turnround of Homebase. Analysts also welcomed the sale, which enabled Wesfarmers to quit the UK do-it-yourself market and remove the risk related to £1bn of leases on Homebase stores and the possibility of having to close a major business in the UK. But some questioned whether there was enough accountability at board level to ensure lessons had been learned from the Homebase debacle. "Where does the buck stop . . . and who pays a price for losing A$1.5bn?". Hilco beat competition from Alteri Investors to acquire Homebase, which began losing money shortly after it was acquired by Wesfarmers. Wesfarmers said it expected further losses of up to £230m related to writedowns, transaction costs and the transfer of some operating cash and pensions linked to the Homebase business.

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