Final bids for Masters and HTH announced

by | Aug 11, 2016

Final bids for Masters and HTH announced

By Christine Bannister

Bunnings may soon have a new rival in the $48 billion Australian home improvement market, if Home Timber and Hardware (HTH) and Mitre 10 merge to become a $2.2 billion wholesaler.

The merger would see approximately 650 stores operating under the Mitre 10, Home Timber & Hardware, True Value Hardware and Thrifty Link banners, as well wholesaling to unbranded stores. However, this would result in the Australian hardware industry having only one full-service hardware wholesaler and reduce competition in this segment.

timthumbWoolworths’ other troubled home improvement chain, Masters, is expected to be sold separately from HTH, with the Blackstone Group, a consortium backed by property group Charter Hall and other bidders in the process of negotiating a deal. It is also believed that at least two bidders are making offers for both businesses and this may pose difficulties for Metcash, as Woolworths may prefer a single, uncomplicated deal. Anchorage Capital Partners are also rumoured to be likely candidates and have been linked to Metcash.

Industry divided 

Much of the industry remains divided on Metcash’s bid to acquire HTH for an estimated $200 million. While some retailers support the acquisition, arguing that Metcash offers plenty of logistics and purchasing expertise as well as on-going support to independent retailers, opposing retailers disagreed with the merger, claiming they did not want to be in business with their competitor. Some retailers felt that a breakaway group may be formed if the merger went ahead.

Final bids for Masters and HTH were due on Monday July 18, with sources reporting that there may be six active bidders, some for HTH alone, some for Masters alone and two other firms bidding for both HTH and Masters.

A final decision by Woolworths and its advisor, Citigroup, was expected to be announced following the recent decision by the ACCC, albeit with conditions, to approve Metcash’s purchase of HTH.

HTH and Mitre 10 merger

Metcash initially debated with the ACCC that if it took on HTH it would not favour joint venture and company owned stores over nearby independents and not restrict independents from sourcing products from suppliers other than Mitre 10. Metcash also promised it would ensure stores, that are not corporate owned, and within 10 kilometres of a corporate store, would receive the same supply terms and conditions. Regular auditing would also be conducted to ensure these undertakings were met. The idea that Metcash may be forced to sell its 45 joint venture and company owned stores was rejected by a Metcash director.

Woolworths reported its decision was not based on the highest bidder, but more on what is best for HTH retailers, as this group represents 70 per cent of group earnings. As of July 20, HTH retailers had not ruled out a break-away group if they remained unhappy with the buyer Woolworths had chosen.

Blackstone closes in on Masters

New York based private equity company, Blackstone, has become the ideal candidate for the Masters portfolio, although it has not submitted an offer for HTH, which is rumoured to have already suffered a slide in profits, particularly after it was announced that Blackstone was no longer bidding for the wholesaler and after the submission of a number of lower than expected bids.

Masters timeline

August 29, 2009

Woolworths announces it will join the Australian hardware industry.

March 29, 2011

Woolworths launches branding of its joint venture with Lowes and reports it will break even by 2015. It has 14 stores under construction and building approvals for 10 more stores.

August 29, 2011

Masters opens its first store in Braybrook, Victoria to the trade and then to the public on September 1, 2011.

July 18, 2013

Slow sales and high wages are blamed for Masters upgrading its expected losses from $119 million to $157 million.

August 12, 2014

Losses to both the Masters and HTH brands grow to $169 million in the first six months of 2014 and Woolworths reports a profit was not expected until 2017.

November 26, 2014

Woolworths and Lowes spend $3 billion on Masters with no profit in sight.

February 27, 2015

Woolworths reports a 3.1 per cent drop in its bottom line with a $1.28 billion first half profit. Masters losses are at $103.2 million in the half accumulating to $500 million in losses.

June 18, 2015

Woolworths plans to axe 1200 workers and chief executive officer, Grant O’ Brien departs. Morgan Stanley, Deutsche Banks and UBS slash target prices, reporting a turn around will be more expensive and longer than expected.

September, 2015

Masters is reported to have lost $227.4 million with Woolworths and Lowes spending $3.2 billion into the venture.

January 18, 2016

Woolworths announces it will either sell or shut down Masters Home Improvement and Home Timber & Hardware Group if a buyer is not found – leaving 8500 staff with uncertain futures.

Masters booked $717.1 million of losses before interest and tax over a four year period to June 2015.

7000 workers at 63 Masters stores and 1500 employees at 275 Home Timber & Hardware stores face financial uncertainty.

Leading consulting firm, DGC Advisory, is preparing the much anticipated Market Impact Report, that will analyse the ‘New World’ once the new owner/s are announced and at the wheel.  The report will highlight the likely effect on suppliers, the retail landscape and subsequent opportunities. Enquiries regarding the report may be directed to Geoff Dart (0419 755 252) or Peter Ruz (0409 342 112).

Bunnings update

Bunnings will also have plenty of money invested off shore over the next two to five years, after it took on the UK market with its $A705 million acquisition of Homebase.

Plans are already well underway for a pilot Bunnings store to open in the UK in October, with a small amount of Bunnings stores to follow before Christmas; however, Bunnings has reported it would not rebrand Homebase or increase investment until the pilot is proven to work.

With Bunnings expected to spend over £500 million to convert the chain, this would see plenty invested in the UK chain, particularly over the next two years which is the time predicted to convert all Homebase stores.

However, Britons’ decisions to quit the European Union could now see a weaker housing market in the UK, and potentially lead to a recession, with J.P.Morgan’s Shaun Cousins reporting the Brexit could not only accelerate downturn in the housing market, but also demand for DIY purchases from Homebase.

This may also see Bunnings short of resources when trying to compete with the potentially merged Home Timber and Hardware Group (HTHG) and Mitre 10, creating a $2.2 billion wholesaler under 800 stores.