METCASH has unveiled a proposal to take over the struggling hardware group Mitre 10 and could be matched by at least two other bidders over the weekend, as the nation's $36 billion hardware sector encounters a wave of consolidation triggered by Woolworths' march into the industry.
Metcash, a grocery wholesaler and distributor, is mimicking Woolworths by launching a bid for the independent loss-making hardware chain to take advantage of the lucrative home improvement business.
Following what is believed to be months of talks between a number of parties, Metcash pounced first on Friday by submitting a board-approved conditional proposal to purchase an initial 50.1 per cent stake in the Mitre 10 group with the potential to acquire 100 per cent of the business in 2012 or 2013. The value of the bid was not disclosed.
Mitre 10's recent annual reported it had total assets of $202.3 million and liabilities of $204.3 million.
Up to two-thirds of Mitre 10 is owned by the franchise operators, with the company styled like a co-operative but housed within an unlisted public company structure.
Metcash's chief executive, Andrew Reitzer, said the entry into the hardware sector via Mitre 10 provided a good opportunity to leverage its proven merchandising and brand management skills and logistics capability, which would ultimately be to the benefit of Mitre 10's independent hardware retailers.
"Recent developments in the hardware sector have materially changed the landscape and outlook for independent operators," Mr Reitzer said.
"Based on our experience and success in the competitive food and liquor sector, a Metcash-backed Mitre 10 wholesaler will enable Mitre 10's retail customers to compete more effectively in an increasingly competitive marketplace." Although Mitre 10 is one of the largest players in the sector, its recent performance has been at odds with the booming industry. It posted a loss of $11.7 million for the latest financial year.
Mitre 10's revenue fell to $995 million from $1.04 billion, while the closure of underperforming stores forced it to book a $12.1 million pre-tax loss on discontinued operations and left the hardware group with negative equity.
Yesterday Mitre 10's chief executive, Mark Burrowes, said talks with potential bidders were initiated by the board as part of its transformation program.
"We are searching for the most appropriate partner to allow the group to grow and remain Australia's only truly independent national hardware network," Mr Burrowes said.
"We are expecting a number of formal proposals from interested parties by close of business [Friday] and Mitre 10 will make further comment once the board of directors has fully evaluated all proposals."
Just this month Woolworths and its US joint venture partner, Lowe's, wrapped up their $87.6 million takeover of the 150-year-old Danks as part of a wider strategy to open up to 150 "big box" hardware stores to compete with the market leader, Bunnings.
The partners expect to open the first hardware store in Victoria in 2011. Danks has 1500 stores under its hardware banner group against a national network for Mitre 10 of 500 Mitre 10 and True Value Hardware stores.
Woolworths held talks last year with Mitre 10 about a potential buy-out of the chain but it eventually walked away from any deal as negotiations collapsed.
Frequently Asked Questions about this Article…
What is Metcash’s takeover proposal for Mitre 10?
Metcash submitted a board-approved conditional proposal to buy an initial 50.1% stake in Mitre 10, with the potential to acquire 100% of the business in 2012 or 2013. The monetary value of the bid was not disclosed in the article.
Why is Metcash interested in acquiring Mitre 10 and entering the hardware sector?
Metcash says buying Mitre 10 lets it leverage proven merchandising, brand management and logistics capabilities from its grocery and liquor experience to enter the lucrative home improvement market and help independent Mitre 10 retailers compete more effectively.
Is Mitre 10 in financial trouble and what do its recent results show?
Yes. Mitre 10 reported a loss of $11.7 million for the latest financial year, revenue fell to $995 million from $1.04 billion, it booked a $12.1 million pre-tax loss on discontinued operations after closing underperforming stores, and its most recent balance sheet showed assets of $202.3 million versus liabilities of $204.3 million (negative equity).
Who owns Mitre 10 and how is the company structured?
Up to two-thirds of Mitre 10 is owned by franchise operators. The business is styled like a co‑operative but is housed within an unlisted public company structure.
Could other companies match Metcash’s bid for Mitre 10?
The article says Metcash could be matched by at least two other bidders, and Mitre 10’s board was expecting a number of formal proposals by close of business on Friday as part of its transformation program.
How is Woolworths’ recent activity affecting consolidation in the Australian hardware sector?
Woolworths and its US joint venture partner Lowe’s recently completed an $87.6 million takeover of Danks and plan to open up to 150 'big box' hardware stores to compete with Bunnings. That move has materially changed the landscape and helped trigger consolidation among independent chains like Mitre 10.
What benefits does Metcash say Mitre 10 retailers would gain from a Metcash-backed Mitre 10 wholesaler?
Metcash argues a Metcash-backed Mitre 10 wholesaler would enable Mitre 10’s retail customers to compete more effectively in an increasingly competitive marketplace by applying its merchandising, brand management and logistics expertise.
What should everyday investors watch for next in the Mitre 10 takeover story?
Investors should watch for formal acquisition proposals and the Mitre 10 board’s evaluation of offers (expected by the close of business on Friday per the article), any announcement if a bidder matches Metcash, and developments on whether Metcash will move from an initial 50.1% stake to a full acquisition in 2012 or 2013. Note the bid value was not disclosed.
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