Metcash set to buy Woolworths’ Home Timber and Hardware

Metcash was believed to be finalising contracts last night to buy Home Timber and Hardware from supermarket operator Woolworths, with the price paid by the grocery operation anticipated to be somewhere between $150 million and $200m.

The deal is set to see investment bank Macquarie Capital launch an equity raising for Metcash to fund the acquisition, which may be launched today, when the listed group is expected to announce the purchase to the market.

It follows a board meeting yesterday of Hydrox Holdings — the Woolworths subsidiary that controls all of its hardware operations and was jointly owned by US-based Lowe’s.

Lowe’s held one third of the entity, but has exercised its put option, as Woolworths opted to wind up the venture.

Hydrox comprises HTH, a timber and hardware marketer and distributor to branded and independent retailers, which also counts itself as a retailer with 43 company-owned stores.

It also houses hardware retailer Masters, which includes about 60 sites, around 40 of which are owned by Woolworths.

Metcash has been an eager buyer of HTH due to the compelling synergies it can offer to its own hardware subsidiary Mitre 10. Advised by Luminis Partners, the listed grocery wholesaler and distributor was competing for the operation against Anchorage Capital Partners, which previously bought the now-collapsed Dick Smith from Woolworths for $94m before floating the business two years later for $520m. Metcash gained approval from the Australian Competition and Consumer Commission to buy the asset in recent months.

HTH and Masters have been up for sale by Woolworths in a Citi-advised contest and an announcement on the process was expected to be made before the company’s results on Thursday.

It has been dogged with delays, believed to be due to differing views between Lowes and Woolworths on the valuation of the assets.

According to the information memorandum obtained by DataRoom earlier this year, HTH has annual sales of about $937m and has around 1600 employees and annual earnings before interest, tax, depreciation and amortisation is believed to be around $22m.

This column first reported in July that Metcash was expected to raise somewhere between $50m and $70m to fund the acquisition. Sources close to Woolworths yesterday said they believed Metcash was eager to keep the amount of equity raised to a minimum.

Meanwhile, the contest for the Masters property portfolio is understood to have narrowed to a three-horse race between Charter Hall and its backers, a private consortium including members of the wealthy Salteri family and US private equity firm Blackstone. Blackstone is understood to be offering to take Woolworths’ $700m-plus lease liabilities off its hands in exchange for the property portfolio, which some estimate may be worth as little as $500m.