Home Retail Group considers spinning off Homebase to concentrate on Argos

Published on: 28th July 2014

Home Retail Group is considering a plan to spin off its £1.5b DIY chain Homebase so it can concentrate on developing its more prosperous Argos chain.HomebaseArgos300

Homebase has long been regarded as the weakest player in the sector facing stiff competition from chains like B&Q and Ikea. Sales have improved over the last year, but profits have remained modest at £10m. By comparison, Argos has a turnover of £4b and a profit which exceeds £100m.

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. 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. 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.

The value of Home Retail has more than doubled to £1.4b 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.

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