Woolworths’ Masters home improvement chain is considered unsaleable after losing more than $600 million over the last few years, but the same can not be said for Woolworths’ Home Timber and Hardware chain, aka Danks. Source: The Australian Financial Review
Hundreds of independent hardware retailers have quit the sector over the last few years, but HTT’s sales have doubled to $937 million, boosted by the acquisition of small chains such as Hudson Timber and Hardware and Belmont Timber.
While Masters lost $245 million last year, HTT earned $20.9 million before interest and tax, almost twice its earnings in 2009.
It’s no wonder that Mitre 10, which is owned by Metcash, is now taking a look at HTT.
According to some in the industry, Mitre 10, which earned around $30 million last year, has already held informal talks with Woolworths about buying HTT.
HTT would be worth more than $200 million, based on a multiple of 10 times earnings.
A merged Mitre 10 and HTT would have annual sales around $2 billion and almost 900 stores, with a combined market share around 5% – one quarter that of market leader Bunnings.
The big question is whether a deal would get past the Australian Competition and Consumer Commission.
According to Deutsche Bank, if the ACCC defined the market as the broader $44 billion home improvement market there would be little cause for concern.
However, if the ACCC defined the market as the wholesale market, a merger of the two largest wholesalers would likely raise competition concerns.
One option may be for Woolworths and Metcash to sell their respective hardware wholesale operations into a joint venture, which could be subsequently floated.
