Wesfarmers has begun sounding out potential buyers for its troubled Bunnings UK & Ireland venture to potentially soften the financial blow of a market exit, according to reports.
Sky News in the UK reported over the long weekend that investment bank Lazard has been brought on to approach potential suitors for the loss-making operation.
The search is part of a review process flagged by the conglomerate in February after racking up millions in losses since acquiring the Homebase network for $700 million at the start of 2016.
Sky reports that Lazard’s UK office, chaired by Bunnings advisory board member Archie Norman, has contacted several potential buyers over the last two weeks and that Wesfarmers is also considering a Voluntary Arrangement scheme which could free BUKI from outstanding commitments to a variety of creditors.
Wesfarmers confirmed that it had engaged Lazard to assist with its review of BUKI, but did not specifically address reporting over a potential sale or Voluntary Arrangement scheme.
Wesfarmers chief executive Rob Scott said in February that “all options” were on the table as part of a strategic review of the business set to be complete by the end of June.
“Whether or not it [BUKI] will be meaningful enough to be a significant part of the Wesfarmers group in the future, that’s an open question,” Scott said in February.
A potential sale would see Wesfarmers recover some of the costs associated with an exit from the UK, which Scott has previously said involved around $1.8 billion in outstanding lease obligations.
Wesfarmers is currently paying around $354 million in annual lease costs on its circa 250 Homebase stores and analysts have warned that losses could rack up further in the coming years if it keeps the business.
A Voluntary Arrangement scheme would see BUKI take a similar route that Toys ‘R’ Us recently took with its UK operations and would result in a large number of store closures.
Although Scott has previously signalled his willingness to work on turning around the business, having described many of BUKI’s current woes as self-inflicted.
“Two years ago this was a business that was profitable,” Scott said in February.
“Whilst I think conceptually the decision to exit various retail concessions [in Homebase] was probably the right decision over time, the pace at which we exited those concessions and the failure to present other range other products that resonated with Homebase customers really contributed to some of these losses,” Scott conceded.
Wesfarmers has left the door open to what type of answer it will provide the market on BUKI’s future in June.
Scott has, however, shown his willingness to take decisive action to manage the Wesfarmers portfolio since taking the helm from his predecessor Richard Goyder last year.
Last month Wesfarmers announced that it would look to spin off its supermarket business Coles into a separate ASX listed unit to employ its capital in higher-return areas.
UPDATED – 12:14 AEST 3/4/2018
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