Atlantic Homecare faces major overhaul should merger go ahead

Speculation is mounting over the fate of the DIY chain Atlantic Homecare following the recent merger proposition between building materials group Grafton and its Irish rival Heiton.

Property experts and financial analysts predict the retailer, which is one of the big four in the DIY industry, along with Woodies, B & Q and Homebase, will face a radical overhaul if the Competition Authority approves Grafton's €36 million takeover bid. The addition of Heiton's DIY wing to Grafton's retailing operation, Woodies, means the enlarged firm will have a market share of 16.5 per cent, giving it a significant edge over its main rival, B & Q, which is owned by the London-listed corporation, Kingfisher.

But a newspaper report last weekend indicated Grafton may be forced to dispose of or even shut down a number of Heiton's DIY outlets in order to win approval for the bid from the Competition Authority.

According to one financial analyst, who preferred to speak anonymously, the take-over is unlikely to be completed until next February if the Competition Authority announces a second phase to its initial investigation due out on November 18th.

He claimed Grafton's board would accept any radical changes to the DIY retailing element of the merger as the key attraction is "the synergies that can be achieved on the building materials side of the business".

Alternatively, he said the deal could result in some of Atlantic Homecare's 13 stores being rebranded as Woodies with the remaining outlets repositioned as soft furnishing shops. He said this move would depend on location. "Some Atlantic Homecare stores are better directed towards the core DIY market, such as those that are in retail parks, but there are a number of stand-alone stores near town centres that could easily be repositioned towards the soft furnishing market."

He also suggested the Grafton group may choose to dispose of any "sub-optimal" Atlantic Homecare outlets and absorb the DIY chain entirely into the Woodies brand. Alternatively, the management board could continue to allow both retailers to grow independent of each other but he described this as the least attractive proposition.

Atlantic Homecare's new boss, Mr Ray Colman, CEO of Woodies, has refused to discuss any projected changes until the completion of the Competition Authority's review.

However, he rejected suggestions that the Atlantic Homecare outlet at Liffey Valley would be one of the first to go in any shake-up. Industry sources claim sales at the store are under pressure from B & Q's huge outlet in the same complex, although anecdotal accounts suggest the UK retailer has recently been the victim of its own success with customers facing huge delivery delays on some product ranges.

Sales at Liffey Valley are reportedly being squeezed even further by the Woodies DIY outlet in Tallaght, acknowledged by Mr Colman as one of the group's best performing stores.

Property agents and developers will closely watch Grafton's strategy decisions in relation to Atlantic Homecare as any dramatic change is likely to have a major impact on retail warehousing - now regarded as the fastest growing sector in commercial property due to the fierce competition between the top DIY chains.

Some observers believe the merger of two of the biggest players will result in dwindling demand for such schemes. But others dispute this, pointing to the massive expansion of the industry in recent years from the influx of foreign multiples as well as new indigenous firms, like Dairygold's DIY chain 4Home.