By Petrina Berry
Bunnings owner Wesfarmers hopes to make its first overseas foray with a $705 million play for one of Britain's biggest home improvement chains.
The Perth-based conglomerate, which also owns Coles, has made a £340 million offer for the big box Homebase chain which it plans to rebrand as Bunnings.
Homebase is the second largest home improvement and garden retailer in the UK and Ireland, with 265 stores and annual revenue of £1.5 billion.
"The acquisition would be the first step in a program ... to reinvigorate core Homebase assets to build an exciting new Bunnings-branded business over three to five years," a statement from Wesfarmers said today.
"The UK home improvement and garden market is an attractive and growing market."
Wesfarmers has been in secret talks to buy Homebase from its parent company, Home Retail, since September.
The Aussie conglomerate was forced to confirm it had examined the Homebase books and signed an exclusivity agreement after details of the deal leaked in London overnight.
Bunnings is the dominant home improvement retailer in Australia and Wesfarmers hopes to replicate its success in Britain.
Morningstar analyst Daniel Mueller said Homebase's operating margins had fallen in the past decade, while Bunnings had a healthy 11 percent.
"There is potential for a large prize for Wesfarmers management if they can operate it as well as they do with Bunnings in Australia," he said.
"There is a lot of potential for margin uplift on any sales growth they can generate."
However, he said Britain's hardware sector was more competitive than Australia's and Wesfarmers would have to adapt to different consumer preferences and supply dynamics in the UK.
The UK has two other major DIY retailers: the biggest being Kingfisher's B&Q and the other major player being Travis Perkins' Wickes chain.
Home Retail has said it wants to sell Homebase so it can focus on its Argos retail business, which contributes about six times as much operating profit as the DIY chain.
British supermarket giant Sainsbury's had approached Home Retail in November to buy the entire business, with its interest mainly on Argos.
The offer was rejected by Home Retail but Sainsbury's has until February 2 to decide whether to make another bid. However analysts don't believe the supermarket giant is interested in taking on Homebase as part of the deal.
Shares in Wesfarmers closed 55 cents, or 1.4 percent, lower at $39.40 amid wider market falls.