Homebase bought by Australia's Wesfarmers for £340m

UK DIY chain Homebase has been sold by its owner Home Retail Group to Australian retail giant Wesfarmers for £340m (A$705m; $485.2m).

Wesfarmers already owns Bunnings - one of Australia's largest suppliers of outdoor living and DIY products.

The 265 UK Homebase sites will be rebranded under the Bunnings banner over the next three to five years.

Wesfarmers said it would spend a further £500m on upgrading the UK stores.

The deal is expected to be wrapped up in the first three months of this year provided shareholders of Home Retail Group agree to the purchase.

Wesfarmers, which owns one of Australia's biggest supermarket chains, Coles, has estimated that the UK's home improvement and garden market is worth £38bn. The market leader is Kingfisher's B&Q chain.

Bunnings is Australia's biggest DIY chains

Bunnings

• Founded in 1886 by brothers Arthur and Robert Bunnings, who left London to settle in Perth, Australia

• Many of the 38,000 staff - known as team members - appear in the firm's own adverts

• It is one of Australia's largest DIY retailers, and claims "nobody beats our prices"

• Owned by Wesfarmers since 1994 and now based in Melbourne

• It has more than 360 outlets across Australia and New Zealand

Home Retail Group, which owns the Argos retail chain as well as Homebase, has been put in the spotlight after it emerged that it had rejected a takeover bid from supermarket chain Sainsbury's last year.

However, Sainsbury's has made clear that it is only interested in Argos and it had been expected to sell Homebase if a deal was agreed.

Last week, Home Retail Group said its annual profits would be at the bottom end of forecasts following disappointing sales at Argos over the key Christmas period.

Homebase

• Homebase was founded in 1979 by Sainsbury's and Belgium's GB-Inno-BM

• Its first stores opened in Croydon and Leeds in 1981

• Homebase is the second-largest home improvement and garden products retailer in the UK and Ireland

• It currently has 265 stores and employs about 18,000 staff

• In the year to 28 February 2015, it had revenues of nearly £1.5bn and operating profits of nearly £20m.

Announcing the deal, Home Retail Group chairman John Coombe said: "We are very pleased to have reached agreement with Wesfarmers regarding the sale of Homebase. We believe that this is the best deal for shareholders and for the business."

Bunnings managing director John Gillam said the acquisition represented a "compelling opportunity to enter the attractive UK home improvement and garden market".

"Homebase has an established and scalable store platform with strong representation in high density areas," Mr Gillam said. "The stores are well-sized for the UK market and support warehouse merchandising," he added.

"We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and garden offer."

Analysis: Chris Johnston, BBC News

If Wesfarmers can transfer some of the Bunnings magic to the UK, consumers will be in for a treat. The vast warehouses are well laid out and signposted, and seem to employ knowledgeable, friendly staff.

Bunnings is clearly doing something right. Woolworths, which owns the main competitor to Wesfarmers' supermarket chain Coles, has failed to convince many Aussies to switch to Masters - the DIY chain it set up four years ago.

The loss-making business has been a drain on Woolworths and contributed to the three profit warnings the retailer issued last year. Shares in Woolworths have slid almost 23% in the past 12 months, compared with a fall of just 6% for Wesfarmers.

My builder mate in Brisbane says he is sticking with Bunnings because Masters is more expensive and doesn't have the same product ranges.

It's likely that Wesfarmers will use its existing supply deals for its UK Bunnings stores, which could mean more competitively priced products. Kingfisher - owner of both B&Q and the successful Screwfix chain - will soon have some proper competition on its hands.