Wesfarmers already owns Bunnings - one of Australia's largest suppliers of outdoor living and DIY products.
The Australian retailer said it would spend a further £242m to build up the Homebase business under the Bunnings brand.
The deal is subject to shareholder approval.
Wesfarmers,
which owns one of Australia's biggest supermarket chains, Coles, said
the UK's home improvement and garden market was worth £38bn.
Homebase is the second-largest home improvement and garden products retailer in the UK and Ireland.
The
deal is expected to be wrapped up in the first three months of this
year, provided shareholders of Home Retail Group agree to the purchase.
'Compelling opportunity'
Bunnings managing director John Gillam said the acquisition
represented a "compelling opportunity to enter the attractive UK home
improvement and garden market".
"Homebase
has an established and scalable store platform with strong
representation in high density areas," Mr Gillam said. "The stores are
well-sized for the UK market and support warehouse merchandising," he
added.
The move was the first step in building up a new Bunnings-branded business "over three to five years", Mr Gillam explained.
"We
will combine essential local elements with the best of Bunnings to
bring customers in the UK and Ireland an exciting new home improvement
and garden offer."
Last week, Home Retail Group confirmed it was in advanced talks to sell Homebase to Wesfarmers.
Announcing
the deal, Home Retail Group chairman John Coombe said: "We are very
pleased to have reached agreement with Wesfarmers regarding the sale of
Homebase. We believe that this is the best deal for shareholders and for
the business."
Home Retail Group itself is a bid target for UK
supermarket chain Sainsbury's, which is interested in Home Retail
Group's other major business, Argos.
Earlier this month it emerged that Sainsbury's had a takeover approach for Home Retail Group rejected in November last year.
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