Homebase eyed up by potential buyers

DIY retailer Homebase is being circled by a number of potential bidders, according to reports, with French company Leroy Merlin said to be leading the pack.

Following a surprise pre-Christmas profit warning from owner Home Retail, interest in the chain has stepped up.

Leroy Merlin, which is part of Adeo Group, are understood to have examined Homebase on a number of occassions in the last few years, the Sunday Times reported.

"They have had repreated looks at Homebase, but they are quite conservative," one industry figure told the newspaper.

Other companies and investors said to be interested are Nicholas Marshall, who used to run the Garden Centre Group, and furniture seller Steinhoff International.

In October's half-year results, Home Retail disappointed with a profit warning as it revealed like-for-like sales at Argos dropped 3.4% and cautioned that it was uncertain how customers would respond to the upcoming 'Black Friday' sales event.

Argos-owner Home Retail surged on Tuesday following a report that Nicholas Marshall, a former executive of the Garden Centre Group, is mulling a bid for Homebase.

According to the Financial Times last week, Marshall has been looking at Homebase for the last couple of years and has been holding talks with private equity firms regarding a possible bid, with analysts agreeing with the logic behind a potential disposal.

Investec said that media reports had appeared vague and that any potential bidders will likely wait until after the peak Christmas trading update.

The stumbling block for any would-be bidder, RBC Capital Markets has suggested, is likely to be Home Retail's £333m rental liabilities, which means it is "not under-leveraged", though the Argos store estate is more flexible these days. Homebase is marginally profitable and any buyer would be confident of cutting annual capital expenditure of £175m and managing down its relatively high tax rate over time.