Wesfarmers expects to make a £200-230million loss on the business it paid £340million for two years ago.
It had already indicated it could close up to 40 of its 250 stores, risking about 2,000 jobs from its 12,000 workforce.
Hilco, which rescued HMV in 2013, did not give details on how many Homebase stores it intends to keep open.
Wesfarmers had intended to invest £500million on new stores to replicate its Australian DIY chain Bunnings.
Its 24 Bunnings pilot stores will now be converted to Homebases.
Assuming what works in the Australian DIY market will work in the UK with its different climate was a great leap in faith
It admitted mistakes after changing the Homebase senior management and removing popular bathrooms and kitchens.
It took a £584million write-down this year as it headed for a £97million half-year loss.
Wesfarmers managing director Rob Scott, pictured, said: “The investment has been disappointing, with poor execution compounded by a deterioration in the macro environment and retail sector in the UK.
“The performance has improved in recent months under the new management led by Damian McGloughlin who continues to lead Homebase in delivering management’s turnaround plan.”
Hailing “an exciting new chapter” with Hilco at Homebase, McGloughlin said: “With their support we have the commitment of an experienced partner, substantial additional capital, stability and the opportunity to reinvigorate a brand that has been a mainstay of UK retail for over 40 years.”
Warwick Business School’s John Colley called Wesfarmers’ ownership of Homebase “one of the great all-time disasters in mergers and acquisitions”.
He added: “Assuming what works in the Australian DIY market will work in the UK with its different climate was a great leap in faith.
“Wesfarmers underestimated the costs of conversion to the Bunnings format, which does not seem to work.
“Then they fired the top 160 managers who knew anything about the UK market and replaced them with their own limited knowledge.
“Finally they delisted the top selling lines.”