Will Wesfarmers Ltd buy Masters hardware from Woolworths?

What: A report in The Australian newspaper today has suggested that Bunnings, owned by Wesfarmers Ltd (ASX: WES) has joined forces with commercial property owner and manager Charter Hall Group (ASX: CHC) to bid for assets of the ailing Masters Home Improvement business which is owned by Woolworths Limited (ASX: WOW).

So What: In January, Woolworths announced that a “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.”

Given Bunnings is the clear market leader within the Australian hardware sector it’s certainly not surprising that the group would reportedly be interested in acquiring certain assets from Masters.

One of the early and ongoing problems which Masters faced was securing appropriate “big box” format property sites on which to roll out its home improvement concept. This difficulty was due to a multitude of reasons including Bunnings already having a well-established footprint of prime locations, along with a land grab by Bunnings to secure additional sites once Masters entered the market.

Now What: With Woolworths likely to be getting closer to executing its exit from its disastrous foray into the hardware sector, management and investors can finally turn their attention back to the most important part of the group, its supermarket business.

Amazingly, it’s quite the opposite scenario for investors watching Wesfarmers. The recently announced expansion of Bunnings into the UK and the potential to further its market share in Australia via targeted Masters stores is arguably the most exciting growth avenue at present for Wesfarmers.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.

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