British retailer Kingfisher sells Italian unit Castorama for $872 million

02 August 2008

Although Kingfisher is a name most of us in India will associate with Vijay Mallya, internationally the name has been made famous by the London-based retailer which, over the years, has owned several iconic British brands like Woolworths, B&Q and Comet.

Although B&Q is still very much a part of the Kingfisher stable, Woolworths was hived off in 2001 to raise funds for the beleaguered group. Over the recent past it has shed many assets and focus exclusively DIY retail, in which it currently occupies the top spot in Europe and the third in the world after American firms Home Depot and Lowe.

Now, the group has stepped up its turnaround plan with the sale of its Italian subsidiary for €560million (£441 million or $872 million). The company's share price rose 5.8 per cent to 124.2p after it agreed to sell its underperforming Castorama business to Groupe Adeo, the French independent DIY retailer. Contrastingly, the stock has lost half its value over the last one year.

The Italian unit, which made profits of £29 million in the year to the beginning of February, has 31 stores and employs 2,200 people.  They will add to privately-owned Groupe Adeo's operations in nine countries, with main brands such as Leroy Merlin or Bricoman.

The sale is consistent with Kingfisher's aim of delivering a step-change in shareholder value, CEO Ian Cheshire said in a statement, as the company pushes through a recovery plan to cope with slowing markets. The company said it would use the cash from the deal to reduce its £1.5 billion debt burden, which Cheshire had vowed to eliminate this year.

Retailers across Europe are struggling as shoppers cut back on spending amid rising food, fuel and mortgage costs, and home improvements chains have taken an extra hit from a plunge in housing market deals in key economies such as the UK.