Acquisition

GUS PLC
21 November 2002


21 November 2002


                                    GUS PLC

                        ACQUISITION OF HOMEBASE



GUS plc, the retail and business services group, today announces an agreed offer
for Homebase, a leading UK DIY and home furnishings retailer, for about £900m.
Part of this sum will be used to repay Homebase's existing debt. In the year to
February 2002, Homebase made an operating profit of £86m and it is expected to
generate approximately £100m of operating profit in the current financial year.



Homebase will become part of the Argos Retail Group (ARG), the leading UK
multi-channel retailer, bringing:



A leading brand in fast growing markets: Homebase is the number two brand in the
UK DIY market. It is also strengthening its appeal as a home furnishings
destination. The skills and scale of ARG will enhance Homebase's organic growth
prospects in both markets.



Complementary strategies: Both ARG and Homebase are pursuing strategies to
expand in the growing furniture and homewares market.  ARG has grown sales in
these markets to over £1 billion in the year ending March 2002, having increased
by 12% per annum on average over the last two years.  Homebase's sales in
furniture and homewares were nearly £250m, up by 18%, in the year ending
February 2002. The combination of skills and knowledge in the two businesses
will accelerate the achievement of a strong position for both in this market.



Operational benefits: Combining ARG and Homebase will exploit the existing ARG
infrastructure and capabilities in supply chain, logistics, financial services
and multi-channel retailing.  Annual margin and cost benefits of at least £20m
within three years are expected.



Customer benefits: Customers will benefit from broader choice as Homebase
develops a true one-stop solution for customers to enhance their home.  Better
value will arise from re-investment of supply chain savings, while greater
convenience will be offered through ARG's home delivery capability. From a
customer standpoint, Homebase will remain separate from Argos and the other
brands within ARG.



Greater value for GUS shareholders: The acquisition is expected to be
immediately earnings enhancing and to generate a post-tax return in excess of
GUS' cost of capital (about 7%) in its first full financial year.


The purchase price will be satisfied in cash, with a loan note alternative.  The
acquisition will be funded from a bank facility arranged for this purpose by
GUS.  The acquisition is subject to regulatory clearance from the Office of Fair
Trading. GUS has received irrevocable undertakings from shareholders accounting
for 94.4% of the shares of Homebase to accept the offer.



John Peace, Chief Executive of GUS, commented:

'For the last three years, we have been repositioning our portfolio of
businesses to focus on growth.  The acquisition of Homebase is a further example
of our determination to create shareholder value.  With our experience of
revitalising Argos and integrating major businesses, the ARG management team is
well-equipped to drive Homebase's future growth and development.'



Terry Duddy, Chief Executive of ARG, commented:

'Homebase is a strong, differentiated brand in the growing DIY market.  ARG will
enable Homebase to pursue its growth strategies more effectively and I am very
excited about working with Homebase employees to take this business forward.



'The acquisition of Homebase is a major step in the development of ARG.  It
further strengthens our position as a leading UK non-food retailer, giving us
combined annual sales of £6 billion and operating profit of £340m.'





Enquiries


GUS
John Peace             Chief Executive, GUS                        020 7495 0070
Terry Duddy            Chief Executive, Argos Retail Group
David Tyler            Finance Director, GUS
Fay Dodds              Director of IR, GUS


Finsbury
Rupert Younger                                                     020 7251 3801
Rollo Head





There will be a presentation today to analysts and institutions at 10am at the
Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ and a
press conference at 12 noon at the same location.



GUS announcements are available on its web site: www.gusplc.com.  The slide pack
and presentation to analysts and institutions will also be available there later
in the day.  There will also be a conference call to discuss the results at 3pm
today.  A replay will be available later on the GUS website.



High resolution photographs of management are available from www.newscast.co.uk.
Video footage of Homebase stores is available from Finsbury on 020 7251 3801.





INTRODUCTION





GUS is pleased to announce an agreed offer to acquire the whole of the share
capital of Homebase. The total acquisition cost to GUS is about £900m.  Part of
this will be used to repay Homebase's existing debt.



Rationale for acquisition

Argos Retail Group was formed in June 2000 and now consists of a number of
multi-channel retail businesses, all with clear strategies for organic growth.
The revitalisation of Argos has continued since its acquisition by GUS in 1998.
It is now one of the leading general merchandise retailers in the UK.



ARG is looking for further growth in order to enhance its competitive position
for the long term.  It has set criteria that any potential acquisition would
have to meet.  In particular, target companies have to be in growth markets, be
in areas where ARG already has or can establish competitive advantage and enable
ARG to leverage its existing infrastructure and scale.



Homebase, one of the UK's leading DIY retailers, meets all of these criteria.
It has a clear strategy for growth, building on its strong position in the DIY
market and expanding into home furnishings.  This strategy capitalises on its
brand strength and differentiates it from other DIY competitors.  The
complementary skills of ARG, which already has sales of over £1 billion in
furniture and homewares, will accelerate the execution of this strategy.  In
addition, there will be combined annual cost savings of at least £20m within
three years.



The £12bn DIY market has grown by 8% per annum over the last five years, while
the £20bn home furnishings market has grown by 7% per annum.  Both have grown
faster than total retail spending and this is expected to continue, reflecting
enduring customer trends.



Management

Homebase will become part of ARG, but retain its separate brand identity and
organisation.  Terry Duddy, Chief Executive of ARG, will become Chairman of
Homebase upon completion of the transaction.  Homebase's Chief Executive and
Chief Financial Officer will stay with the business until April 2003 through the
Easter peak trading period.  Other managers in key areas are anticipated to
remain with the business.  The management team will be strengthened by
appointments from within ARG and externally.


INFORMATION ON HOMEBASE



Homebase is the third largest DIY retailer in the UK, behind B&Q and the Focus
Wickes group.  As the second largest DIY brand, it has a more up-market, higher
income, female customer base than its competitors.  Its product offer is focused
on the softer (or more decorative) end of DIY, on home furnishings and
gardening.  Sales in the year to 2 February 2002 comprised 25% core DIY
products, 32% decorative products, 25% gardening and 18% homewares. It currently
has 272 mainly out-of-town stores (10.8m sq feet of selling space), biased to
the more affluent South-East.  Its Spend and Save loyalty card has 4.3m active
cardholders.



Homebase's recent financial performance is shown in the table below.  In the
year to 2 February 2002, its operating profit was £86m.  Further strong progress
is expected in the current financial year, driven by like-for-like sales growth
of 6% in the year to date, by a small improvement in the gross margin due mainly
to better buying, and by tight control of costs in both stores and head office
functions.  Assuming that there is a continuation in the pattern of trade seen
in the period to date, Homebase is forecast to make operating profit before
financing charges, tax and exceptional items of approximately £100m in the year
to February 2003.




Year to end January/early February                  2000                   2001                       2002

Number of stores                                     287                    283                        273
Selling space (000 sq ft)                         11,187                 11,305                     10,824

Sales £m                                           1,197                  1,273                      1,380
% growth                                             11%                     6%                         8%
Like-for-like % growth                               12%                     6%                        10%

Operating profit £m *                               55.0                   26.5                       85.9
% operating margin                                  4.5%                   2.1%                       6.2%

* Operating profit is before exceptional costs but after e-commerce costs (£1m
in 2000, £15m in 2001 and £3m in 2002)



RATIONALE FOR ACQUISITION OF HOMEBASE



GUS believes that the acquisition of Homebase has a compelling strategic
rationale for the following reasons:



Homebase is a leading brand in fast growing markets:

Homebase is the number two brand in the UK DIY market. It is also strengthening
its appeal as a home furnishings destination. The skills and scale of ARG will
enhance Homebase's organic growth prospects in both markets.



Homebase has a strong brand in DIY

Homebase is the second largest DIY brand in the UK, with a 12% market share and
high brand awareness.  Its product offer is clearly differentiated from its
competitors. It leads on choice at the soft end of the DIY market, for example,
for home textiles, decorating projects and gardening. The Homebase brand is
particularly strong with higher income and female customers, who are attracted
to the convenience, quality and service offered.



Homebase is moving into home furnishings

Homebase's brand strength and customer franchise is allowing it to develop
beyond DIY into the growth areas of furniture and homewares.  This is easier for
Homebase than other DIY retailers who are more concentrated on professional,
heavy end DIY products, targeting the trade or serious buyer for major repair,
maintenance and improvement projects.



Homebase operates in long-term growth markets

ARG management believes that the DIY and home furnishings markets that Homebase
serves will continue to show above average growth rates in the future:



-          the DIY market in the UK is valued at £12bn, and has grown by 8% per
annum over the last five years. It has undergone considerable consolidation in
recent years;

-          the home furnishings market (comprising furniture and homewares) is
valued at £20bn and has grown by 7% per annum over the last five years; and

-          there are many social, demographic and economic reasons to expect
sustainable, above average UK growth, as these two markets converge in the
future.  These include the increasing number of households and home ownership
and a greater emphasis on fashionability and style in the home.



The convergence between the DIY and home furnishings markets reflects the demand
by consumers for a more convenient, one-stop shop solution to their home
enhancement needs. Homebase is very well positioned to satisfy this growing
demand.



Homebase has good organic growth prospects

Homebase has a clear strategy for growth, building on its strong position in the
DIY market and expanding into home furnishings.  This strategy capitalises on
its brand strengths and differentiates it from other DIY competitors. ARG will
accelerate the execution of this strategy.



More new stores: Under ARG, Homebase will bolster its store opening programme.
Building on its current base of 272 stores, an additional five to ten new stores
per annum are planned over the next three years, net of closures and re-sites,
contributing 2-3% to annual sales growth.



Drive home furnishings sales: To capitalise on its strong brand position in the
growing home enhancement market, Homebase has begun the introduction of new
products, including furniture, kitchens and soft furnishings. In the first eight
months of the current financial year, these new ranges contributed about 4% to
total sales. Roll-out to the complete chain will be completed within three
years, when the new ranges are expected to account for around 15% of sales.



Store extensions and refurbishments: To date, Homebase has trialed the
introduction of mezzanine floors in 27 stores, adding more than 25% to trading
space.  The mezzanine space is generally used to sell extended ranges of
furniture, kitchens, bathrooms and electrical appliances.  It also enables
Homebase to improve ground floor displays of homewares in a shop-in-shop
environment for curtains, kitchenware, bathroom, tabletop and lighting.
Appropriate space is retained and refurbished for the traditional Homebase DIY
and decorating ranges.



Sales uplifts in these trials are over 15% on average and the post tax return on
capital is high.  More than 20 additional mezzanine floors will be added in 2003
and ARG believes there is long term potential for at least half of the existing
Homebase stores to have mezzanine floors.



ARG accelerating the execution of this strategy: ARG has a strong management
team with experience of enhancing businesses and developing effective
multi-channel operations.  There are clear opportunities to strengthen retail
and operational processes and disciplines within Homebase.  These include
strengthening category management skills, store operation controls, stock
management, logistics and direct importing capabilities.



Complementary strategies:

Both ARG and Homebase are pursuing strategies to expand in the growing furniture
and homewares market, Homebase from its position of strength in soft end DIY and
ARG from its position as an established multi-channel general retailer.  The
combination of skills and knowledge in the two businesses will accelerate the
achievement of a strong position for both in this market.



ARG is growing its sales of furniture and homewares significantly.  In the year
to 31 March 2002, they contributed over £1 billion of sales, having increased by
12% per annum on average over the last two years.  Competitive prices,
increasing range and the success of Argos Direct (the delivery to home
operation) have driven this.  As a result, ARG now has a 5% share in home
furnishings, making it a UK market leader, albeit in a very fragmented market.



ARG has extensive product, supply chain and merchandising capabilities in this
market. It will be able to accelerate Homebase's move into home furnishings,
especially in developing new ranges for the mezzanine space, including
furniture, kitchens, bathrooms and soft furnishings.



Operational benefits:

Combining ARG and Homebase will exploit the existing ARG infrastructure and
capabilities in supply chain, logistics, financial services and multi-channel
retailing. The acquisition of Homebase will lead to many opportunities over time
to improve efficiencies across the group.  These benefits will either be
re-invested in lower prices or used to support margins.



Scale and sourcing benefits: Over time, benefits will come from joint buying and
increasing the number of common suppliers. There is also scope to increase
direct importing.  Currently, only a small proportion of Homebase's sales are
lower cost imports.  Management believes this could grow to over 30% in three
years time.  Homebase will be able to use the ARG Far East buying office and
infrastructure immediately after the transaction is closed.



Leveraging the ARG infrastructure: In addition to common buying and a shared
merchandise range, the current ARG brands already share many common functions,
including human resources, finance, IT, e-commerce, financial services and
Reality (home delivery and call centre operations).



Over time, Homebase will be able to take advantage of ARG's existing
infrastructure and skills to grow revenue, especially in multi-channel retailing
and financial services.  Opportunities include:

-          assisting in launching, producing and targeting speciality
           catalogues;

-          developing a delivery-to-home operation, especially to support growth
           in furniture;

-          enhancing Homebase's on-line customer services and range extension;
           and

-          expanding the financial services offer, especially to Homebase's
           active database of 4.3m customers holding its Spend and Save loyalty 
           card.



ARG management believes that there are potential annual synergies of at least
£20m from combining ARG and Homebase.  These will arise primarily from scale
benefits in product sourcing and direct importing.  They will be realised over
the next three years and will either be re-invested in lower prices or used to
support margins.




Greater value for GUS shareholders:

The acquisition of Homebase is expected to be immediately earnings enhancing and
to generate a post-tax return in excess of GUS' cost of capital (about 7%) in
its first full financial year.



In the year to 2 February 2002, Homebase's operating profit was £86m.  Expected
further growth in the DIY and home furnishings markets, coupled with Homebase's
own growth initiatives and the synergies available over time from combining it
with ARG, should underpin future profit growth.  However, the financial
justification for the deal does not depend on either significant cost or revenue
synergies.



One-off costs of around £10m have been identified to date, which will be taken
in the first full financial year.  Capital expenditure for Homebase is expected
to be about £60m per annum, compared to a depreciation charge of over £50m.
Homebase's net assets are in the region of £150m.





Further information on the acquisition:

The offer to acquire Homebase is conditional on the acquisition not being
referred to the Competition Commission following a review by the Office of Fair
Trading. It is anticipated that the transaction will close by mid January 2003.



GUS has received irrevocable undertakings from shareholders accounting for 94.4%
of the shares of Homebase to accept the offer.



The precise level of the total consideration for this transaction will be
determined with reference to completion accounts.  This consideration is
estimated to be about £900m and is capped at £910m.  The purchase price will be
satisfied in cash.  A loan note alternative will be available, consisting of
floating rate, guaranteed, unsecured loan notes with a final maturity date of 31
March 2004, paying just under LIBOR.



The acquisition will be funded from a bank facility arranged for this purpose by
GUS.  It is intended to refinance this with longer-term debt during 2003.



Following the acquisition of Homebase, GUS' debt will move from £1.3bn at 30
September 2002 to £2.2bn proforma.  Its proforma interest cover is in excess of
seven times.





Notes to Editors



Information on GUS

GUS is a retail and business services group.  It provides information and
customer relationship management services through Experian, multi-channel
retailing and home delivery through Argos Retail Group and luxury goods through
a majority shareholding in Burberry Group plc.



In the year ended 31 March 2002, GUS had sales of £6.5 billion and profits
(before goodwill, exceptional items and taxation) of £552 million.



Information on ARG

Argos Retail Group (ARG) is a multi-brand, multi channel retailer. It provides
consumers with exceptional value and the widest possible choice of what to buy,
how to buy it and how to get it home.



ARG was formed in 2000 and now includes Argos, ARG Equation (formerly GUS Home
Shopping), European Home Shopping, ARG Financial Services and Reality. In the
year ended 31 March 2002, ARG had sales of £4.7 billion and profits (before
goodwill, exceptional items and taxation) of £255 million.





ARG post Homebase

Following the acquisition of Homebase, ARG will have proforma sales in the
region of £6.1bn and profits of £341m, as below:




                                                               Sales                    Operating profit
                                                                  £m                                  £m
Year to 31 March 2002
Argos                                                          2,847                               204.0
UK Home Shopping                                               1,607                                33.1
Financial Services                                                11                                (4.8)
Home Shopping Europe                                             238                                22.4
Total                                                          4,702                               254.7

Year to 2 February 2002
Homebase                                                       1,380                                85.9

Total ARG (proforma)                                           6,082                               340.6




Home enhancement market



The home enhancement market is defined as below:


                                                         Market size 2001 £bn    5 year CAGR (1996-2001) %
Home Furnishings
 - Furniture                                                               11                            7
 - Homewares *                                                              9                            7

DIY
- Core                                                                      7                            8
- Decorative                                                                2                            9
- Gardening                                                                 3                            7

TOTAL HOME ENHANCEMENT                                                     32                            7

* Defined as Soft Furnishings e.g. textiles, bed and table linen, curtains and
cushions, and Housewares e.g. table and glassware, kitchenware and lighting



                      This information is provided by RNS
            The company news service from the London Stock Exchange