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Metcash to pay $165m for Woolworths' Home Hardware

Wednesday, 24 Aug 2016 13:28:18 | Stephen Letts

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Woolworths has taken another step in its humiliating retreat from being a major player in the $45 billion home improvement market, selling its Home Timber and Hardware business to smaller rival Metcash.

Metcash will pay Woolworths $165 million in cash for 100 per cent of the Home business that Woolworths bought in 2009 for $88 million.

Home was the first plank in Woolworths' attempt to take on Wesfarmers' "big box" hardware champion Bunnings, before scaling up its ambitions with the Masters brand in 2011.

The strategy has failed spectacularly with Woolworths expected to write off Masters as a discontinued business at a cost of $2.7 billion in its full-year results tomorrow.

Woolworths - along with US joint venture partner and 30 per cent stakeholder Lowes - is still looking for a buyer for Masters.

In a statement to the ASX, Metcash said the deal will be funded through a combination of $80 million in equity to be raised from institutional investors and $85 million in debt.

It was purchased at the fairly cheap multiple of seven-times earnings with deal adding scale to Metcash's existing Mitre 10 hardware business.

Metcash said Home will make money from the start, forecasting it increase earnings per share by 4 per cent in the first full financial year.

The deal is expected to be completed in early October and will give Metcash a network of around 1,800 hardware stores generating $2 billion in sales.

Metcash promises better deal for hardware customers

The Australian Competition and Consumer Commission gave a green light for the prospective deal in July, clearing the way for the sale to go ahead.

Mitre 10 and Home have a strong focus on trade customers as opposed to the do-it-yourself market Masters chased.

Metcash chief executive Ian Morrice said both Mitre 10 and Home are passionate about supporting independent retailers.

"The increased scale, together with the opportunity to realise significant efficiencies, will enable us to be more competitive and deliver a better outcome for both our hardware retailers and their customers," Mr Morrice said.

Woolworths made little comment apart from advising the ASX of a trading halt.

"Woolworths is looking to exit the home improvement sector and we are unable to comment on the sale process that is currently in train," the company said in a statement.

Metcash said it would remain in a trading halt until Friday morning pending the completing of the equity raising.

AustraliaPlus


 

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