Wesfarmers to sell disastrous UK Bunnings push for just £1

WESFARMERS chief Rob Scott says the decision to pull the pin on a disastrous foray into the British hardware market should not scare the group from pursuing other international opportunities.

WESFARMERS chief Rob Scott says the decision to pull the pin on a disastrous foray into the British hardware market should not scare the group from pursuing other international opportunities.

But the head of the Perth-based conglomerate, which owns Bunnings, Coles, Kmart, Target and Officeworks, has indicated any future overseas push will not be in retail.

“One should be cautious about international M&A (merger and acquisition) on the retail side,” Mr Scott told Business Daily on Friday.

“To be frank, the history of international M&A, even from some of the leading international retailers, has not been fantastic.”

Mr Scott, who took the Wesfarmers reigns in November, has called time on its troubled push to take Bunnings into Britain and Ireland.

WESFARMERS PATIENT AS SALES SLIDE IN UK

$1B WRITE OFF ON STRUGGLING BRITISH CHAIN

It was the first major overseas expansion by Wesfarmers and torched about $1.9 billion in shareholder value over two years.

Mr Scott said the key mistake Bunnings had made was not having enough local strong management involved.

Bunnings stores in the UK tried to revise its branding to turn the business around. Picture: Supplied

Executive bonuses would be cut, he warned.

“It’s my expectation there will be significant remuneration impacts,” Mr Scott said.

Wesfarmers shelled out $705 million for the ailing UK hardware chain, Homebase, at the start of 2016.

It will sell more than 200 Homebase stores and 24 stores converted to Bunnings outlets for £1 to private equity group Hilco Capital, which specialises in restructuring distressed businesses.

The deal hands Hilco about $1.8 billion in lease liabilities. Bank of America Merrill Lynch analyst David Errington said the Bunnings UK debacle had “dusted a lot of value” and was “a dent to confidence” in Wesfarmers’ ability to pull off acquisitions.

JP Morgan analyst Shaun Cousins said Wesfarmers’ track record on growth through acquisitions was “not great”.

Mr Cousins cited the purchase of the Pacific Brands workwear group, the specialty gas business Linde Gas Australia and supermarket heavyweight Coles, which lowered the conglomerate’s return on equity. “It doesn’t appear as though Wesfarmers has executed M&A that well over the past decade,” he said.

Mr Scott defended the company’s track record of deal making and said the decision to “draw a line in the sand” on Bunnings UK and Ireland was an example of it looking to boost shareholder returns.

“If you look over the last few decades of Wesfarmers’ history as a listed company, there is no question it has been, on average, a good allocator of capital,” he said.

Mr Scott said that while Wesfarmers’ management would be held to account for poor business decisions, he did not want senior leaders to feel so “nervous and afraid” they would not pursue new opportunities and take risk.

“There is a lot we can learn and my message internally is let’s continue to be bold but be diligent,” he said.

While deal making remained on the radar, Mr Scott said the greatest value the company could deliver shareholders was by improving its existing suite of businesses, which spans retail, chemicals and resources.

“I think people are overstating the importance of M&A and undervaluing the opportunity to manage our business really well,” he said.

“That’s not to say M&A isn’t really important, but it’s the icing on the cake.”

The Homebase acquisition was made when Richard Goyder led Wesfarmers and Terry Bowen was its chief financial officer. John Gillam was Bunnings’ managing director at the time. All have since left Wesfarmers.

Shares in Wesfarmers rose 0.9 per cent on Friday to close at $45.52.

MORE BUSINESS NEWS

@johndagge

[e-mail]