Sainsbury's offloads Homebase

By JIM ARMITAGE
Updated:

 

Sainsbury's has finally pulled off the sale of its Homebase DIY chain to Schroder Ventures and Kingfisher in a complex deal that will reap the group up to £969m if all goes to plan.

The agreement brings to an end a lengthy sale process causing months of speculation about whether Sainsbury's chief executive Sir Peter Davis would be able to sell the division. He had originally hoped for £1bn to £1.2bn and held negotiations with a number of other interested parties.

But the City reaction was muted as some analysts fretted over the amount of risk being retained by the supermarkets group, which is re-investing £31m for an 18% equity stake. Schroders is paying £416m in cash plus an IOU of £75m for the existing stores.

Certain freehold properties in the chain, valued at £259m, will be retained by Sainsbury's and operated on a sale and leaseback agreement to Schroders. In the New Year, Sainsbury's will start looking for buyers of the freeholds, which will command rents of more than £16m a year.

Meanwhile, through its B&Q chain, Kingfisher will spend up to £219m buying 28 development plots earmarked for Homebase warehouse superstores. Again, Sainsbury's will retain some risk as Kingfisher gets a refund on any sites where planning permission is not granted within a specified period.

Sir Peter said: 'We have some risk in this transaction but we are happy they are good properties and are satisfied with the valuation.' He added: 'Now we will be focusing heavily on our grocery business - we have lots of plans for growth.'

Homebase managing director Kate Swann is leaving the company and Schroders will put in entrepreneur John Lovering, formerly finance director at Sears, as chairman.

Richard Ratner, retail analyst at stockbroker Seymour Pierce, said: 'It looks to me like Davis is dressing this one up - it isn't a cash deal and hasn't raised the £1.2bn originally hoped for.'

Shares in Sainsbury's fell 5 1/4p to 410p, while Kingfisher improved 1 1/4p to 471 1/4p. For Kingfisher, the deal speeds its plans to create new giant stores, granting it a clutch of properties at a time when sites are not easy to find.

Contrary to earlier reports that Schroders was struggling to finance the deal due to the collapse in the European junk bond market, it denied it had planned such an issue. UBS Warburg will provide the debt.

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