After months of speculation Wesfarmers has confirmed it will sell its Bunnings UK and Ireland business after a “disappointing” two years of plummeting sales.
The Australian retail giant will sell the UK business to Hilco Captial, an investment company that specialises in turning around failing businesses.
The sale will leave Wesfarmers between $350 to $400 million (£200 to £230 million) worse off.
Wesfarmers bought UK home improvement chain Homebase for $650 million in 2016, with the plan to revamp the stores on the highly successful Australian model.
The plan was to rebrand all the stores as Bunnings outlets, complete with weekend sausage sizzles. To date 24 of the 252 Homebase stores have been rebranded.
But the UK punters didn’t respond as planned, and dismal sales left Wesfarmers with two options: pour yet more money into a failing venture in the hope that things would turn around; or cut their losses and run.
Wesfarmers managing director Rob Scott revealed on Friday that, after a review, the company had chosen the second option.
“While the review confirmed the business is capable of returning to profitability over time, further capital investment is necessary to support the turnaround.
“The materiality of the opportunity and risks associate with turnaround are not considered to justify the additional capital and management attention required from Bunnings and Wesfarmers.”
Mr Scott said the investment had been “disappointing”, and blamed a mixture of “poor execution” by the business and a “deterioration in the macro environment and retail sector in the UK”.
The sale will be completed by the end of June. However, that may not be the end of the story for Wesfarmers shareholders, as the sale price includes an entitlement for the company to take a 20 per cent cut of any equity distributions, in the event that the new owner manages to turn the business around and sell it for a profit.
The writing was on the wall for Bunnings UK in February, when Wesfarmers revealed it had dragged the company’s half-year profits down by a massive $1 billion.
While investors were already expecting Friday’s announcement, confirmation of the decision was welcomed, boosting the company’s share price by almost 1 per cent.
In March Wesfarmers announced it would be hiving off its biggest subsidiary, supermarket Coles, and listing on the Australian Securities Exchange as a separate entity.