Cantillon: New Homebase bidder changes game
Examiner Kieran Wallace
The emergence of an as yet unidentified “independent” potential bidder for Homebase’s Irish stores was clearly not part of the Home Retail Group’s cunning plan. They presumably had hoped to follow the path beaten by B&Q which bought its Irish business back once the leases on its stores had been renegotiated for it by an examiner.
Homebase clearly had its problems here. Sales had fallen by 31 per cent since 2009 and the business had been unprofitable for each of the past five years despite remedial action taken by management. It is arguable that what it is doing is is a misuse of the examinership process but at the same time it is a pragmatic solution to the problem created by the widespread inclusion of upward-only rent reviews in boom-time leases .
These, combined with unrealistic expectations on the part of landlords, particularly when the tenant is a blue-chip international retailer, have left the likes of Homebase and B&Q with few other options. It is also worth noting that the restructuring of B&Q involved the writing off of a significant amount of intercompany debt and something similar is on the cards with Homebase.
But as yesterday’s news reminded us, examinership is a court process and the object is to preserve the company, rather than facilitate the restructuring of Irish subsidiaries of UK multiples.
The examiner Kieran Wallace will presumably have to bear this in mind when he judges which of the two proposals is the most viable.
That said it is hard to see anyone trumping Homebase’s UK parent, not least because it is the biggest creditor of the Irish operation and as such can oppose any scheme. Although it would find itself in a tricky situation having triggered the examinership to begin with.
It promises to be interesting and much will depend on who the mystery investor turns out to be. Should they be revealed as another international group that would have the capacity to step into Home Retail’s shoes in Ireland it could leave the Milton Keynes-based group with a lot of egg on its face.