Woolworths to close or sell Masters and Home Timber and Hardware

Woolworths will either sell or shut down its struggling hardware chain Masters, putting an end to the supermarket giant's disastrous foray into the home improvement market.

The company said there was no prospect of the 63-store chain becoming profitable in the short term and it could no longer sustain the losses of more than $200 million it was incurring every year.

Masters lost $600 million over the past four years.
Masters lost $600 million over the past four years. Photo: Glenn Hunt

Woolworths chairman Gordon Cairns said on Monday the company would purchase the third of Masters owned by US home improvement chain Lowe's Companies, making it easier to then offload or close the join venture.

"We intend to pursue an orderly prospective sale or wind‐up of the business," Mr Cairns said.

Illustration: Matt Golding.
Illustration: Matt Golding. 

"We decided we didn't have the risk appetite to continue losses into the foreseeable future."

The 40-store Home Timber and Hardware chain, which Mr Cairns said was "eminently sellable", will also be off-loaded.

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He was more circumspect about the larger chain, saying he was not aware of any interested buyers and declining to say if it could be viable with different owners.

"I've got no idea if this business is sustainable under a different owner – it certainly wasn't under Woolworths ownership," he said.

The final decision to pull out of Masters was the result of a review of the business started in September, shortly after Mr Cairns took over as Woolworths chairman from Ralph Waters.

"There are very few businesses in the world that would be profitable from day one," Woolworths' chief financial officer David Marr said.

"The question is: can you get to an acceptable level of profitability and ultimately a return within an acceptable time frame.

"That's how we've looked at this business."

Mr Cairns and Mr Marr would not comment on why Masters failed to make any money.

Outgoing chief executive Grant O'Brien oversaw Masters' conception in 2009, launch in 2011 and subsequent $600 million loss over the past four years.

He defended Woolworths' $2.1 billion home improvement experiment, which was originally designed to take the wind out of rival Coles' hugely successful Bunnings, which on Monday announced it was expanding to the UK and Ireland.

"Five years ago the rationale for entering the market was significant, we thought," Mr O'Brien said on Monday.

Woolworths has not yet found a replacement for Mr O'Brien, but that search is expected to become easier without Masters weighing the company down.

Masters ran at a loss of $245 million last financial year, but Home Timber & Hardware made about $20 million in profit, and Mitre 10 owner Metcash has been rumoured as a potential buyer from the smaller chain.

Masters is listed as worth $2.8 billion in Woolworths' accounts, and it and Lowe's have five days to negotiate a fair price for the American company's 33.3 per cent share.

If they can't decide a price, they will appoint independent evaluators to do so, which would take about two months, Mr Cairns said, with the final resolution of either a sale or liquidation potentially even longer away.

"Our preference would be a trade sale, because that is cleaner, but after that I wouldn't like to speculate on a timetable," he said.

Masters and Home Timber and Hardware will continue to trade in the meantime, with gift vouchers, laybys and project contracts honoured.

Merrill Lynch analyst David Errington, who has been outspoken in his criticism of Woolworths' home improvement strategy, said it was a "momentous day for Woolworths' shareholders", and congratulated Mr Cairns on the decision.

"I just want to congratulate you, a man of action, in making decisive decision like this," Mr Errington said.

"I'm really pleased you are doing the best thing for shareholders."

Investment bankers Macquarie Group said exiting Masters would free up capital that Woolworths could use to turn around its underperforming supermarket business.

Woolworths shares had jumped 6.8 per cent in early trade on Monday off the back of the announcement, while the benchmark index was down almost 1 per cent.

Woolworths said taking 100 per cent ownership of Masters and then winding it up would result in tax losses of $200 million that it could use to offset profits in the rest of its business over the next few years.