Stores giant Home Retail Group considering plan to spin off DIY chain Homebase to concentrate on developing Argos
Stores giant Home Retail Group is considering a plan to spin off its £1.5 billion DIY chain Homebase so it can concentrate on developing its more prosperous Argos chain.
Homebase has long been regarded as the weakest player in the sector facing stiff competition from giants like B&Q and Ikea. Sales have improved over the last year, but profits have remained very modest at just £10 million.
The review of Homebase follows the promotion of John Walden to group chief executive in March following his successful turnaround of Argos over the previous two years.
Taking stock: Homebase has long been regarded as the weakest player in the sector facing stiff competition from giants like B&Q and Ikea
City sources said Home Retail had considered selling Homebase previously, but the option has come ‘into sharper focus’ recently following the commencement of a company-wide strategic review by Walden and signs of stronger sales and profitability at Homebase.
A final decision could be made in the coming weeks, several sources told The Mail on Sunday. The most likely exit for the Homebase business is for it to go to a private equity firm rather than spinning it off on the stock market.
The prospect is being ‘openly discussed’ across the Home Retail business and has already caught the eye of City corporate financiers who have begun circling with interest.
The shake-up at Homebase has begun to bear fruit following improvements to its stores and an overhaul of customer services. But the recent slump and low volumes of house sales has still left DIY retailers struggling to grow.’
Homebase sales and profits have been improving, but it still makes only £10 million annually despite its £1.5 billion sales.
A source added: ‘In the last few months it is back on the table and has become one of the key considerations of Walden’s review.
‘The question is straightforward: would you rather invest all your available resources into developing Argos or have to split it between the two?’
The value of Home Retail has more than doubled to £1.4 billion in the past two years after Walden was drafted in by former chief executive Terry Duddy to refocus the Argos digital strategy.
The board will have to consider whether they would be able to sell a business that is in the early stages of a turnaround or whether it would be a case of having to hand it to new owners with a dowry.
By comparison, Argos has a turnover of £4 billion and a profit which exceeds £100 million.
One restructuring source said: ‘Any new owner of Homebase would undoubtedly need money to invest into improving Homebase and might expect Home Retail to make a contribution if they sold it tomorrow.’
Home Retail declined to comment on ‘market speculation’.
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