Retail and financial services giant GUS has bought the J Sainsbury-owned DIY [home improvement or ‘do-it-yourself’] chain Homebase and will integrate it into its Argos high street business.

The markets approved of the £900 million ($1.423bn; €1.421bn) deal, GUS shares gaining £0.35 on Thursday to close at £6.22. The reaction confounded the views of some analysts who believe the bubble of Britain's over-inflated housing market is about to burst.

But according to Richard Hyman of retail research specialist Verdict, the DIY market is less sensitive to fluctuations in the housing market than might be imagined. Householders, he said, are spending more time at home and therefore are more willing to invest in their properties.

With 265 UK outlets Homebase is the nation’s second largest DIY chain – but languishes with less than half the sales of market leader B&Q which posted revenues of £3.2 billion last year.

Nonetheless, Homebase virtually quadrupled its profits in 2001, soaring from £26 million in 2000 to £86 million. In the current year earnings are expected to top £100 million. During the past two years like-for-like sales have risen 16% per cent, largely due to Homebase’s diversification into soft furnishings.

Terry Duddy, chief executive of Argos Retail Group, licked his lips: “Both these markets are clearly dependent on the outlook for consumer spending but consumer trends support continuing growth. There is greater emphasis on fashionability and style within the home and this business has got good clear organic growth opportunities.”

Data sourced from: Times Online (UK); additional content by WARC staff