Woolworths faces Lowe’s suit over Masters exit

Lowe’s yesterday blasted partner Woolworths for “oppressive conduct’’ and acting in “bad faith’’ over Masters.

A closing down sale at a Masters store in Knoxfield, in Melbourne’s southeast. Picture: Stuart McEvoy

Woolworths’ (WOW) desperate attempts to extricate itself from its hardware chain Masters is in danger of collapsing after its partner, US hardware giant Lowe’s, turned on its one-time ally by launching a surprise legal action to scupper Woolworths’ plan to sell Masters’ assets in a $1.5 billion fire sale.

In a frantic day of courtroom accusations and claims, Lowe’s blasted its partner Woolworths for “oppressive conduct’’ and acting in “bad faith’’ over the planned shutdown of Masters, including a torrid meeting of Masters directors last week at which Woolworths executives tried to rush through a winding-up of the hardware chain during a break to meet Woolworths’ full-year results announcement only days later.

Such is the complete breakdown of the once cosy relationship between Lowe’s and Wool­worths that, while Lowe’s lawyers were in the Federal Court yesterday morning asking judge Lindsay Foster to liquidate the Masters joint venture, senior Woolworths executives and their lawyers were unaware of the action and yet to be served with any legal paperwork.

Lowe’s pushed the button on its court action after nearly eight months of protracted negotiations to sell its one-third stake in Masters back to majority owner Woolworths, and brought the matter to a head yesterday by seeking an order to appoint an independent liquidator to oversee the winding up of Masters.

The court action threatens to up-end Woolworths’ complex exit from its loss-making Masters chain at a time when around the country Masters stores began a closing down sale, offering discounts of as much as 30 per cent on hardware items, white goods and other products.

Meanwhile, David Di Pilla, the former investment banker and ­architect behind a consortium of private investors to seize 82 Masters sites for $750 million, last night stood by his deal with Woolworths, arguing that Lowe’s was simply attempting to “grab more money from Woolworths” and its court manoeuvre was just an ­“argument in the background”.

His backers, which include the billionaire families behind retailer Spotlight, Chemist Warehouse and members of one of Sydney’s richest families, the Salteri clan, have signed deals to buy up to 61 Masters stores and another 21 development sites.

Together with the $165m sale of Home Timber & Hardware to the ASX-listed Metcash and a $500m fire sale of Masters inventory, conducted by GA Australia, the plan unveiled by Woolworths last week was designed to raise $1.5bn and put an end to the Masters chain.

But it seems Woolworths’ move last week to pull the plug on Masters and recoup about $500m in net proceeds after the fire sale was not sanctioned by its junior partner Lowe’s. Lowe’s has bitterly attacked the conduct of Woolworths’ representatives on the Hydrox Holdings board (the entity that owns Masters) — Woolworths’ chief legal counsel Richard Dammery, head of strategy James Goth, chief financial officer David Marr and deputy chief financial officer Colin Storrie — during a series of frosty board meetings this month as Woolworths sought to shed the Masters millstone.

The US group accuses Woolworths of conducting the affairs of Hydrox Holdings “in a manner oppressive to, unfairly prejudicial to or unfairly discriminatory against” it by keeping information from its nominees, flooding them with paperwork and ramming through the winding-up of the Masters business while a board meeting was adjourned last Wednesday.

The Woolworths nominees denied Lowe’s representatives on the Hydrox board — the US group’s chairman and CEO Robert Niblock, president of international Richard Maltsbarger and chief legal officer Ross McCanless — crucial information when they asked for it on August 9, Lowes’ alleges. Lowe’s says that at the August 12 meeting and two additional board meetings held last Tuesday and Wednesday, the Woolworths representatives overwhelmed their Lowe’s counterparts with “voluminous” board papers less than 24 hours before each meeting — leaving no time to properly consider the contents.

The paperwork for the two meetings last week “exceeded 1000” pages, Lowe’s complains.

Breaking point was reached at the board meeting last Wednesday when, according to Lowe’s, Woolworth’s took advantage of a break in proceedings and “wrongfully and in bad faith purported to terminate the joint venture”.

This allegedly enabled Woolworths to ram through a motion winding up the Masters business “that Woolworths wished be passed prior to the announcement of Woolworths’ FY16 preliminary final report on the following morning”, Lowe’s claimed in its filing.

Lowe’s alleges this move was carried out by Woolworths’ nominees contrary to the advice of Hydrox’s lawyers.

“Despite every effort to reach a fair resolution with its JV partner, Lowe’s has been left with no other option but to seek the guidance of the court to achieve an equitable and orderly wind-up of the Masters business,” Lowe’s said.

“Woolworths has engaged in oppressive conduct, including by invalidly and in bad faith attempting to terminate the JV.”

Woolworths confirmed yesterday it became aware of an ex parte application filed by Lowe’s in relation to the home improvement joint venture company, Hydrox Holdings.

“Woolworths is yet to be served with documents relating to this application. The transactions relating to the Home Timber and Hardware sale and Masters inventory clearance by GA Australia are proceeding as announced.”

However, it was silent on the fate of Mr Di Pilla’s transaction.

Mr Di Pilla believes his deal is unshakable. “Woolworths have agreed to sell me their shares, under any circumstances, in the joint venture, end of story,’’ Mr Di Pilla said. “This deal is going ahead, so this is just an argument in the background around money. It’s just an attempt to grab more money from Woolworths, that’s all.”