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Big two shift home improvement strategies

Woolworths has announced plans to exit its home improvement business, Masters Home Improvement and Home Timber & Hardware, while Wesfarmers is seeking to acquire the UK’s second largest home improvement and garden retailer, Homebase.

Woolworths this week announced that it intends to exercise its call option over the 33.3 per cent interest in Hydrox Holdings Pty Ltd held by WDR Delaware Corporation, a subsidiary of Lowe’s Companies, Inc., following notice of Lowe’s election to be able to exercise its put option under the joint venture agreement. Hydrox operates Masters Home Improvement and Home Timber & Hardware (together, ‘Home Improvement’).

Woolworths Chairman Gordon Cairns says a recent review of operating performance indicates it will take many years for Masters to become profitable.

“[Woolworths] has determined we cannot continue to sustain ongoing losses from this business,” he said.

Following the exercise of its call option, Woolworths intends to pursue an orderly prospective sale or wind-up of the business. This enables full ownership of the business by Woolworths in a shorter time frame and gives it access to the widest range of exit options.

“This important decision allows Woolworths to focus its energy and resources on strengthening and executing its plans in its core businesses,” Mr Cairns said.

“While we will move as quickly as possible, the put and call options process will take at least two months to complete and, following this, a potential sale process or other exit process will take additional time. The business will continue to trade through this period. Our top priority is to do the right thing by shareholders, staff, suppliers and customers and we will act quickly and openly to minimise the impact of this decision.”

Woolworths’ chief rival in the home improvement space, Wesfarmers, has entered into an agreement to acquire Homebase from Home Retail Group (for £340 million ($705 million).

Wesfarmers Managing Director Richard Goyder said the acquisition provides a long-term value creation opportunity for Bunnings that will complement the strong growth trajectory of the Australian and New Zealand business.

“Bunnings is well placed to unlock value from the Homebase business and has a proven track record in delivering growth both organically and through acquisition,” he said. “Our offer provides significant execution certainty and an attractive cash consideration to Home Retail Group shareholders.”

Homebase reported revenue of £1,461.2 million ($2.998 million) for the 12 months ended August 29, 2015 and currently has 265 stores.

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