Woolworths Limited (ASX: WOW) has finally decided to sell its Masters Home Improvement business following a decision by its US joint venture partner, Lowe's, to exercise its option to divest the business.
Woolworths' Home Improvement business includes Masters and the Home Timber & Hardware brand. It is held under a joint venture agreement between Woolworths and Lowe's. Basically, the deal allows Lowe's to sell its stake in the Home Improvement business to Woolworths before March 2017.
And following years of losses, it appears Lowe's has had enough. And Woolworths is also bowing to shareholder pressure to divest the business.
"Upon being appointed as Chairman, one of our top priorities was to determine the future of the Home Improvement joint venture," Chairman Gordon Cairns said. "In keeping with the spirit of the joint venture we have actively been engaging with our partner, Lowe's, on this issue."
Our recent review of operating performance indicates it will take many years for Masters to become profitable. We have determined we cannot continue to sustain ongoing losses from this business."
In the past four years, Woolworths has invested $2,847 million on the Home Improvement business. The home improvement market is estimated to be worth more than $40 billion.
Mr Cairns added: "As a result of our engagement with Lowe's, it has advised us that it intends to exercise the put option which is available to it under the joint venture agreement. The agreement requires this to happen before Woolworths may exercise its call option. Following the exercise of our call option, we intend to pursue an orderly prospective sale or wind‐up of the business. This enables full ownership of the business by Woolworths in a shorter timeframe and gives us access to the widest range of exit options."
Woolworths is facing pressure on numerous fronts, from Big W to Masters to supermarkets. Rivals Kmart, Bunnings Warehouse and Coles respectively (all owned by Wesfarmers Ltd (ASX: WES)) appear to be gaining ground in each of the major consumer markets.
"This important decision allows Woolworths to focus its energy and resources on strengthening and executing its plans in our other businesses."
"Whilst 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 all stakeholders," Mr Cairns said.
Woolworths will likely be required to take a hit on its profit line for the proposed undertakings, but shareholders will hope the company can move smoothly through to the sale of the business.
