Wesfarmers itching to ditch BUKI as hopefuls line up

The sale of Wesfarmers’ disastrous Bunnings UK and Ireland (BUKI) is nearing an end. Two buyers are in the running to buy the businesses as the Australian conglomerate tries to cut its losses.

It seems the fire sale has attracted interest from Alteri and Hilco to bid for the business, and a sale could occur in the next week. The firms are each known for delivering turnaround strategies in British retail chains. It was speculated that private equity group Endless had shown interest but it had now dropped out.

The bids are reportedly being analysed now by Wesfarmers adviser Lazard, before they are to be put to the Australian company’s board.

Wesfarmers is growing increasingly keen to get a deal done. Wesfarmers chief executive Rob Scott is due to hold a strategy update on June 7 and it’s expected that a deal to sell BUKI will be in by then.

Wesfarmers’ long -term financial performance

Wesfarmers put the overseas division on the market in mid-March, as part of its plan to demerge Coles and increase the industrial conglomerate’s exposure to Bunnings in Australia.

In February, Wesfarmers wrote down $1 billion on the BUKI business, which brought the company’s half-year underlying earnings down 2.7 per cent to $1.53bn.

BUKI recorded a $165 million loss and the performance of the business has been an ongoing drag for Wesfarmers, even though it has owned the international division for just two years.

Wesfarmers paid $705m in 2016 for the Homebase chain, which it is rebranding into Bunnings.

At the time of its purchase, Wesfarmers outlined plans to invest more than $1bn in the venture to give its powerful Bunnings business an overseas growth platform. But it has been unable to translate its product range to British shoppers and management upheaval has hurt strategy.

Alteri is believed to be in front in the race for BUKI. Hilco is known in Britain for buying HMV, the struggling music label, five years ago.

Alteri is known as a buyer of distressed assets and is backed by Apollo Global Management.

Its most recent purchase was the CBR Fashion Group, a top women’s fashion manufacturer in Germany, in February.

For Wesfarmers, a quick deal is desired and it seems that a transaction in the next week is all about limiting losses.

There have been reports in Britain that the company is willing to offer a $132m “dowry” package to help pay for future costs.

However, for Wesfarmers the big win will be reducing its lease liabilities, which Macquarie has estimated could be as high as $1.6bn.

Wesfarmers’ long -term financial performance

There are 250 stores in the BUKI portfolio, down from 265 when the portfolio was bought. Bunnings has closed 18 stores but opened three new outlets in the past few months.