Wesfarmers, which will abandon the 37-year old Homebase name in favour of its Bunnings Warehouse brand in the next three to five years, plans to invest £500m to overhaul the store estate and open new sites. It marks a stark contrast to the strategy pursued by Home Retail, which had been cutting costs at Homebase and recently closed about 60 stores as the business struggled to compete against BQ. Home Retail said in October 2014 it planned to close one in four Homebase sites.

David Goyder, managing director of Wesfarmers, said Australia’s biggest retailer had “comprehensively researched” the “attractive” British market and “visited hundreds of stores” as part of its Homebase due diligence.

“The £38bn home improvement and garden market is a large and growing market with strong fundamentals,” he said. In a presentation to investors, Wesfarmers said it believed there was “significant potential” for store expansion in the UK under the new format.

Bunnings is a hugely popular chain in Australia and prides itself on its “everyday lowest prices”, wide range of products, and standards of service. Wesfarmers plans to convert Homebase’s premium offering to its low-price model, which means it could pose a tougher rival to BQ-owner Kingfisher, which is due to detail its own overhaul plans next week.

“It will certainly increase the level of competition without a doubt,” said Investec analyst Kate Calvert, adding Bunnings could also pressure trade-orientated businesses such as Travis Perkins because “Wesfarmers seems a lot more hard-end trade focused”.

Kingfisher shares fell as much as 1.9pc, but Home Retail shares rose by 4pc in anticipation of a second Sainsbury’s approach.

Homebase started life in 1979 as a DIY and home furnishings joint venture between Sainsbury’s and Belgian retailer GB-Inno-BM. Sainsbury’s sold the business in 2000 and it has been run alongside Argos for 13 years. In the half-year to August 29, Homebase sales fell 2.2pc to £816.4m but operating profits were up 23.4pc to £34.3m.