Woolworths, Lowe’s in court stoush over Masters wind-up

Court action by US hardware giant Lowe’s could scupper Woolworths’ deal to pull the plug on its Masters business.

Woolworths is trying to extricate itself from its troubled Masters hardware business.

US hardware giant Lowe’s has taken urgent action in the Federal Court against Woolworths, accusing it of “oppressive conduct” over the shutdown of their jointly-owned Masters hardware chain.

The move could scupper the supermarket company’s deal last week to pull the plug on the failed Masters business and sell it off to a range of investors and vulture funds for $1.5 billion.

As part of the closure of Masters, Woolworths also sold off the Home Timber & Hardware chain to ASX-listed wholesaler Metcash for $165 million. Metcash also owns the Mitre 10 business.

Appearing in court this morning, Lowe’s sought an order winding up the Masters business, housed in a corporate vehicle called Hydrox Holdings, on the grounds of shareholder oppression by Woolworths in the sale of the hardware and home improvement chain.

Lowe’s has sought an urgent hearing of the case before Justice Lindsay Foster of the Federal Court. The judge ordered the parties to reappear before him on Wednesday morning.

Lowe’s said Woolworths had wrongfully attempted to terminate the joint venture formed by the pair in 2009, and wanted a liquidator appointed to oversee its wind up.

“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,” it said in a statement.

“Lowe’s has acted in good faith at every stage in both the development and operation of Masters, and has been at all times an engaged investor, a committed partner and proud employer.

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

This afternoon Woolworths confirmed 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.”

The latest hiccup follows a long line of disasters for Woolworths (WOW) as it has tried to extricate itself from the Masters mess.

Last week it sealed a deal with high net worth individuals, investors and families to sell off Masters’ property portfolio for $750 million and the hardware inventory to vulture funds.

The fire sale of Masters inventory was expected to begin this week.

Woolworths first announced earlier this year that it had decided to walk away from the Masters business, seeking to sell it to another operator or shut down the business completely.

As part of the process it entered into negotiations with Lowe’s to buy the US giant’s 33.3 per cent stake in Masters, which would allow Woolworths to have full control and dispose of the doomed retailer.

Those talks were slated to last only a few months, but they have seemingly broken down, stretching into six months of negotiations, and the two parties have failed to agree on a price for the deal. Woolworths and Lowe’s have engaged a string of valuers to come up with a price, but still the parties have refused to budge.

Last week Woolworths sought to push ahead with the wind-down process, shutting down Masters completely. It announced it would close all Masters stores by December 11 and sell off all its 61 properties and 21 development sites to a consortium of wealthy families and well-connected investors.

Those properties are set to be sold for $750 million to a consortium led by former UBS Australia boss David Di Pilla and including the billionaire owners of Spotlight, Chemist Warehouse and a range of private investors.

Mr Di Pilla had sealed rental agreements from a host of retail tenants such as JB Hi-Fi, Spotlight, Anaconda, Chemist Warehouse and Super Cheap Auto to open new stores where Masters once operated, creating the biggest retail property business in the sector with more than 700,000 sqm of space.

But this was all done by Woolworths before any deal was struck with its partner, Lowe’s.

Masters’ hardware stock was sold off to GA Australia, a vulture and recovery group, with the fire sale starting today with prices slashed by 10 to 30 per cent.

Woolworths is set to raise $1.5 billion from the sale of all of Masters assets, putting to an end a six-year retail disaster.

But all that could now be up-ended by the court action by a disgruntled Lowe’s.