13th Jan 2016 18:39
LONDON (Alliance News) - Home Retail Group PLC late Wednesday confirmed that it is advanced talks for the potential sale of its Homebase business to Australia's Wesfarmers Ltd for a cash consideration of GBP340 million.
The confirmation followed a report from Sky News earlier in the day.
Home Retail said that it had begun talks with Wesfarmers in September, and had received a firm offer letter in November from Wesfarmers. Wesfarmers has completed its due diligence and the two companies are currently finalising the transaction documentation, Home Retail said, although it cautioned there can be no certainty any transaction will be agreed.
Under the terms being discussed Wesfarmers would buy the entire Homebase business, including all stores and dedicated distribution centres. Product brands owned by the company including Habitat, Schreiber and Hygena will be excluded from the sale, but licensed for use by Homebase for one year.
Home Retail said the proposed sale follows on from a review of its business in 2014 which introduced a three year productivity plan. The board said it believes a sale to Wesfarmers is the right step for all parties, and the GBP340 million would provide good value for shareholders.
"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," said Chief Executive John Walden in a statement.
Home Retail said it would likely distribute the proceeds of the sale with GBP75 million going into restructuring, separation and deal costs, GBP50 million as a contribution to its defined benefit pension scheme and an intended GBP200 million return to shareholders.
The company believes the sale would "significantly improve" its overall financial position. Home Retail expects the sale to reduce its pretax profit from the financial year 2017 due to the size of the Homebase business, which produced an operating profit of GBP19.8 million in 2015.
However, it said its pretax profit is unlikely to be "adversely impacted" in 2017 due to a combination of income it will receive from a transitional services agreement as well as a phased exit of its Argos digital concessions from Homebase. Under the transitional services agreement the company would continue to charge Homebase, under its new ownership, for the provision of services by retained group shared functions, like large item home delivery and call centres.
Home Retail said it would charge Homebase around GBP70 million for the provision of these services in 2016.
Despite this, the company warned that in the event it is unable to absorb overhead capacity remaining after the expiration of the transitional services agreement, or it is unable to replace Argos concessions currently in Homebase stores with alternative locations, it could see a hit to its pretax profit of around GBP10 million in the 2018, and around GBP20 million from 2019 onward.
The deal comes as Home Retail is subject to a takeover approval from J Sainsbury PLC; Sainsbury's said last week it had made an offer for Home Retail in November, and has until February 2 to either make a firm offer for the company or walk away under UK takeover code.
Home Retail will issue a trading statement Thursday.
Shares in Home Retail closed up 4.1% at 147.69 pence Wednesday.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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