Australia's Wesfarmers takes DIY prowess to Britain with $829 mln deal

Australia's biggest retail group Wesfarmers unveiled on Monday a 1.2 billion Australian dollars ($829.9 million) expansion into Britain's hardware sector, betting on an extension of the DIY craze that turned its Bunnings stores into the market leader at home.

Wesfarmers, which also owns the Coles supermarket chain, said in a stock exchange filing that it plans to buy the Homebase unit of Britain's Home Retail Group for 705 million Australian dollars and then spend another 500 million Australian dollars refurbishing its 265 stores.

No further details were disclosed. Last week, Home Retail Group said it was in advanced talks to sell Homebase as part of a "transformation" plan, and warned its annual profit was likely to come in at the bottom of a £92 million-£118 million range ($131.31 million-$168.42 million).

Richard Goyder, chief executive officer and managing director of Wesfarmers.
Brendon Thorne | Bloomberg | Getty Images
Richard Goyder, chief executive officer and managing director of Wesfarmers.

"It's not without risk," Wesfarmers Managing Director Richard Goyder told reporters after announcing the deal. "(But) we'll put the grunt of Wesfarmers behind it."

Wesfarmers' overseas expansion highlights the confidence it has gained in the DIY sector since buying Bunnings Warehouse two decades ago.

The chain has ridden a housing boom and a fixation with property-focused TV shows to now hold a 40 percent share of Australia's A$40 billion home improvement market.

Bunnings' success contrasts with the fate of its nearest rival, Masters Home Improvement, whose owner supermarket giantWoolworths put up for sale on Monday. The DIY chain, a joint venture with U.S.-listed Lowe's Companies , holds just 9 percent of the market and racked up 600 million Australian dollars of losses since it set up in 2011, local media said.

"Bunnings has staked out that territory so well to the exclusion of anyone else. The impression that they have made on the Australian psyche is that it is a default," said Tom Piotrowski, a market analyst at Commonwealth Securities, which holds Wesfarmers shares.

Bunnings' dominance may force Woolworths to simply close Masters as it may be unable to sell it off to private equity firms, analysts said, adding that shuttering Masters could benefit the third-largest hardware retailer, Metcash , which has 5 percent market share.

Metcash shares rose 6 percent on the news, while Woolworths shares were up 4 percent.

"Whether or not they can find a buyer does remain to be seen, but it could be a way for Bunnings to assert more dominance," said IBISWorld analyst Spencer Little.

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