Bunnings puts the thinners through Wattyl

Paint is a hardware equivalent of supermarket milk, or liquor store beer a?? it brings in customers who, it is hoped, will linger and buy more.

The question is whether Bunnings' call to move to two paint suppliers was made in the normal rough and tumble of retailers placing a high price on access to their shelves, or whether it is connected to the fact that Wattyl is these days owned by US group Valspar.

Valspar just happens to be the paint supplier of choice to US hardware chain Lowe's, which has in turn teamed up with Woolworths to try to knock Bunnings off its perch as hardware supremo. Valspar's acquisition of Wattyl here was always seen as a precursor to building manufacturing capacity to service the new hardware venture.

Technically, hardware is not yet a battleground between the retailing duopoly because Woolies is still months from opening its first store, but it is clear that blood is being shed in some border skirmishes.

Wattyl chief Tony Dragicevich apparently had a meeting with a Bunnings executive last week to be told the shock news that the last of his brands still gracing the aisles of Bunnings would soon be "de-ranged". Bunnings' buyers briefed their own store managers and staff yesterday morning on the change.

Wattyl's interior decorator paints got the chop from Bunnings a couple of years ago for what the retailer saw as under-investment and poor performance. The last to go are its highly rated exterior coatings, Solagard and Killrust.

Given that Bunnings controls about 30 per cent of the retail paint market, Wattyl is likely to lose some 10 per cent of its sales, and quite possibly a few workers, depending on how successful it is in coping with the hit.

Bunnings' view is understandably quite different. In a statement to Insider, it pointed out that it has been reviewing a host of categories for the past eight months and that "a major outcome of the review will be significant range expansions of PPG's [Taubmans'] and DuluxGroup's products, ensuring a more innovative paint offer for customers".

It also rejects any suggestion that by not selling the same brands as Woolworths in future, it will be easier to maintain its "every day low prices" strategy, rather than entering into the cut-throat discounting more common in other retail sectors.

Insider understands that Taubmans' parent, PPG Industries, not only offered changes to its colour range, more generous rebates and training deals for Bunnings' staff a?? it agreed that its brand would be exclusive to Bunnings in the corporate hardware market (it will still be sold in the smaller independent chains).

That is a deal Wattyl, or Valspar Wattyl as Bunnings refers to it, could clearly not offer.

PPG is expected to be doing the reverse of Wattyl; expanding its production of paint to meet the new Bunnings demand, although the official line yesterday was that "PPG Industries has declined the opportunity to provide a statement".

While Dulux's Weathershield brand is reasonably well-known on the street as an alternative to Solagard, Taubmans' outdoor offering, Endure, has a lower profile and smaller market share.

Woolworths has already been to see competition umpire Graeme Samuel, crying foul on issues such as land-banking and what it sees as restrictive deals that Bunnings is trying to strike with suppliers. Those inside Bunnings say they have yet to hear from the Australian Competition and Consumer Commission about supplier complaints, and Samuel is, quite correctly, keeping mum on the subject.

Insider can tell you that lawyers for Wattyl are looking hard at whether the group has any basis for legal action, and there is little doubt that competition law will be the focal point.

Hastie springs a leak

HASTIE Group's much-delayed $130 million equity raising appears to have been blown out of the water by institutional investors driving too hard a bargain on pricing.

The industrial-grade plumbing contractor has been suspended from trading for over a month while it finds a way of raising enough fresh cash to cut its gearing ratio back to levels that make its banks less twitchy. It has net debt in the $190 to $200 million category and pretty much wants to halve that.

Hastie halted trading in its shares in mid-February when the stock was at 92.5A?. Yet, when chief executive David Harris and his advisers from Macquarie Capital, including Dominic Meagher, did their show-and-tell sessions, the professional investors pushed for prices below 30A? a share.

With only 240 million shares on issue at the moment, to raise $130 million at 30A? a share would treble the amount of stock.

Massive dilutions like that generally only get done to avoid being tipped into receivership, or on the way out of it a?? and Hastie has been adamant that its financial status is not that perilous, which is why the board has said there will be no issue at that price.

Hastie has told investors it has more than $2.6 billion in orders, is profitable and its margins are looking healthier.

It reckons that it just has some issues around getting under some of the covenants on its seven bilateral loan agreements a?? terms that had been extended to the end of this month.

Hastie now thinks its banks will let the Thursday deadline pass a?? because they are comfortable with its earnings outlook and cash flows a?? and give it enough time to finalise talks with offshore investors on taking a slab of either convertible stock or an anchor investment.

insider@fairfaxmedia.com.au

Wattyl is likely to lose some 10 per cent of its sales, and quite possibly a few workers.