Wesfarmers loses $ 1 billion in UK Homebase deal

An untimely bet on UK retail cost a major Australian company $ 1 billion.

Wesfarmers (WFAFF) noted She was selling UK home improvement chain Homebase on Friday at a huge loss, just over two years after buying it.

Wesfarmers – which owns supermarkets, hotels and chemical factories – paid £ 340million (around $ 470million at the time) for Homebase in February 2016. It is now offloading it for a “nominal amount” to Hilco Capital, an investment firm that specializes in restructuring distressed businesses.

Wesfarmers chief executive Rob Scott admitted during a briefing with reporters and analysts on Friday that the disastrous foray into UK retail had cost him around A $ 1.3 billion (1 billion dollars) when all of Homebase’s losses were added up.

Scott blamed the declining retail sector in Britain.

“From the time we bought Homebase to where we are today, there has been a dramatic deterioration in the macro and business environment in the UK,” he said.

Bricks and mortar UK retailers struggled since the country’s vote for leave the European Union almost two years ago.

The British pound fell dramatically in the wake of the vote, making it more expensive for retailers to buy goods overseas. This translated into higher prices for consumers, and growth across the economy collapsed.

Related: UK Economy Shuts Down

The industry has been rocked by the collapse of names known as Toys “R” Us and Maplin electronic chain, and thousands of retail jobs have been lost.

Homebase currently has around 230 stores across the UK and employs 12,000 people.

RESTRICTED base store

But some analysts have accused Wesfarmers of failing to properly assess the risks before entering the UK market.

In a conference call with executives at the Australian company on Friday, Bank of America analyst Merrill Lynch David Errington called Homebase a “very bad investment” and called for the Wesfarmers board to be held. responsible.

“There must be penalties for losing such an amount of money in such a short time,” he added.

In response, Scott said the company has been transparent about issues with the deal and that managers’ compensation will be affected by the losses.

The company admitted in its statement that the “poor execution” of the Homebase deal was a key part of the problem.

Wesfarmers might at least have the opportunity to recoup some of their losses someday. The deal with Hilco Capital includes a clause whereby the Australian company receives 20% of any proceeds from a future sale of Homebase.

– Ivana Kottasová contributed to this report.

CNNMoney (Hong Kong) First published May 25, 2018: 6:41 a.m. ET