Could Woolworths Limited be a buy at this share price?

Investors could find out the end game for Woolworths Limited’s (ASX: WOW) Master hardware venture as early as next week – with bids for the business due Monday.

Woolworths hardware business comprises two parts – the Masters retail stores and the Home Timber & Hardware wholesale and distribution business.

According to the Australian Financial Review (AFR), there are four bidders for Home Timber & Hardware (HTH), including Metcash Limited (ASX: MTS), private equity firm Anchorage Capital Partners, a syndicate backed by two former HTH executives and Blackstone Group.

Metcash wants to merge HTH with Mitre 10, but likely faces competition concerns from the Australian Competition and Consumer Commission (ACCC) over the combined hardware wholesaling business.

Anchorage missed out on buying Mitre 10 in 2009, pipped by Metcash, and Blackstone is reportedly after both the HTH business and the Masters retail network. The AFR reports that Blackstone would eventually sell off both.

Woolworths is expected to consider the bids and make its decision once the ACCC releases its decision on Metcash acquiring the wholesale business. That is due next Thursday, so we could see an announcement shortly after that.

The merger of HTH and Mitre 10 would create a hardware wholesaler with sales of around $2.2 billion, roughly 5% of the market, according to the AFR. But it’s hard to see the ACCC having an issue with that, given Bunnings – owned by Wesfarmers Ltd (ASX: WES) – itself has around 18% of the hardware market.

Interestingly, Bunnings appears to have pulled out of bidding for some of the Masters stores – perhaps after Woolworths indicated it wasn’t keen selling them to its arch rival. Wesfarmers also owns Woolworths’ major competitor – Coles.

Whatever the outcome of the sale, the news should be good for Woolworths and its share price could receive a badly-needed boost. The retailer wants to put its disastrous hardware venture behind it and concentrate on fixing its sickly supermarkets division which is struggling to generate same store sales growth.

Foolish takeaway

It could be one step closer to a turnaround next week for Woolworths and its shareholders. With the share price languishing at around $22, now might be a good time for long term investors to dip their toe in.

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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.

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