Woolworths pulls plug on Masters hardware chain

Woolworths is likely to retrieve only a few million dollars from its disastrous push into hardware six years ago.

Nearly 8000 jobs will be lost when Woolworths closes the failed Masters business. Picture: Toby Zerna

Woolworths (WOW) is likely to retrieve only a paltry few million dollars from its disastrous push into hardware six years ago.

The debacle has to date swallowed more than $3 billion in shareholders’ funds, marking one of the biggest corporate misadventures in recent history as its grand plans to build a hardware giant last night degenerated into a tacky fire sale.

To add to Woolworths’ embarrassment over the costly demise of its Masters hardware chain, its one-time adversary and prime target, market leader Bunnings, has swooped in to buy 15 sites and will set about transforming them into new Bunnings stores.

Nearly 8000 jobs will be lost when Woolworths finally closes the failed Masters business on ­December 11 in a move likely to send shockwaves through thousands of suppliers.

As revealed by The Australian’s DataRoom column, in one of the largest property shake-ups in years, a grouping of high-net-worth individuals that includes the billionaire families behind Spotlight Group, the owners of Chemist Warehouse, UBS Australian boss Matthew Grounds and members of the Salteri family — one of Sydney’s wealthiest clans — will snatch a portfolio of 61 Masters properties across Australia and 21 development sites.

The extensive property portfolio, to be rebranded under the Home Consortium investment vehicle, will cover a land area of 700,000sq m as its new investors revitalise the buildings.

They will tear down the Masters livery and replace it with new sites that have already secured lease agreements from retailers such as Spotlight, Anaconda, The Good Guys, Chemist Warehouse and JB Hi-Fi.

The deal was stitched together by former UBS Australia managing director David Di Pilla, who is married to a member of the Salteri family and who will chair the newly formed Home Consortium group.

Mr Di Pilla’s private company Aurrum will be the biggest shareholder in Home Consortium and has found many willing backers including former Brambles CFO Greg Hayes and UBS executives Robbie Vanderzeil and Mr Grounds.

It is unclear how much each member of the group has contributed to the acquisition but accounts recently filed with corporate regulator ASIC show Mr Di Pilla holds $50 million worth of shares in the Home Investment Consortium, which also includes the support of developer Greg Hayes.

Mr Hayes and Mr Grounds are also investors in the Aurrum aged-care venture, which Mr Di Pilla founded two years ago.

Billionaires Zac Fried and Morry Fraid, owners of Spotlight, together with Chemist Warehouse founders Mario Verrocchi and Jack Gance, are minority shareholders in Home Consortium.

Some 15 of the existing Masters sites will be onsold to the hardware operator’s rival Bunnings.

Wesfarmers chief executive Richard Goyder, whose Perth-based conglomerate owns Bunnings, said the potential liquidation of up to $500m in Masters hardware inventory would send ripples through the sector.

“If there is a liquidation of inventory, that could be anything around $500m of inventory, and that will have an impact. It will have an impact on Bunnings, it will certainly have an impact on small businesses in that sector. We will deal with that as best we can,’’ Mr Goyder said yesterday.

And just as Bunnings turned from Masters target to predator, the nation’s other leading hardware chain Mitre 10 will now become a stablemate of its one-time rival. Woolworths agreed as part of the Masters shutdown to sell its smaller Home Timber & Hardware business to ASX-listed rival Metcash for $165m.

Metcash owns Mitre 10, and chief executive Ian Morrice said the two businesses would be complementary and accelerate the wholesaler’s push into hardware, especially in the “trade” ­segment selling to tradies and professionals.

“It makes enormous sense, firstly from the perspective that we want to be the leading ­independent retail business in all of our sectors and strategically it is a great fit,’’ Mr Morrice said.

“It is also very complementary to Mitre 10, the two businesses sitting side-by-side in a very complementary way so operationally it’s an outstanding fit with Mitre 10. From our shareholders’ perspective, there is an opportunity to create shareholder value here, and we have already indicated that in its first year it will be 4 per cent accretive after synergies, and again that’s very good news for our shareholders.”

Metcash will fund the acquisition through a combination of $80m in equity and $85m in debt, to create a combined hardware network of 1800 stores generating roughly $2bn in sales.

DataRoom revealed on Tuesday that Metcash was finalising the contracts to buy Home Timber & Hardware, ousting Anchorage Capital Partners.

Woolworths last night said it is hoped the staff facing job losses would find employment elsewhere within the company or at the new retail chains that will open in the sites once housing a Masters store.

The carve up and closure of Masters brings to an end a nightmare for Woolworths investors which began in 2011 when then chief executive Michael Luscombe pledged to open as many as 150 Masters stores across Australia to snatch earnings from competitors such as Bunnings and Mitre 10.

Woolworths is set to deliver its full year results this morning with analysts tipping a loss up more than $1.2bn, with more than $4bn in writedowns and impairments — much of which flows from Masters — and will see it post its first full-year loss.