Metcash Limited (ASX: MTS) has won approval from the Australian Competition and Consumer Commission (ACCC) for it to bid for rival wholesaler Home Timber and Hardware (HTH) from Woolworths Limited (ASX: WOW).

It means that Metcash’s bid for the wholesale business is highly likely to proceed – and will be combined into Metcash’s Mitre 10 business. The combined entity should prove to be a strong competitor for the gorilla in the industry – Wesfarmers Ltd’s (ASX: WES) Bunnings.

Bunnings is a large, powerful retailer that is present in most local markets, which will indirectly constrain Metcash’s wholesale operations – a factor we also took into consideration,” ACCC Chairman Rod Sims said.

However, Metcash has had to agree to a number of undertakings in order to get the approval. The company has agreed not to restrict hardware stores acquiring products from non-Metcash sources, nor would it favour its own hardware stores over nearby independents. An independent auditor, reporting to the ACCC, will ensure Metcash meets its obligations in the undertaking.

Woolworths is currently undertaking a sale process of its Masters hardware and home improvement retail business and the HTH wholesale group. An announcement by Woolworths regarding the sale is expected anytime from now – as the company was reportedly just waiting for the ACCC decision.

It remains to be seen how much Metcash has bid for the HTH business, and whether the retailer has the winning bid. A low price and the winning bid could see Metcash’s share price surge higher from here.

In early trading, Metcash’s share price was up 1.5% to $2.10. Woolworths’ share price was up 1.3% to $22.82. The market was up strongly with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rising 0.7% to 5,529.2 points.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.