ACCC nod for Metcash acquisition of Total Tools

All systems are go for the Metcash acquisition of a majority stake in the Total Tools network after ACCC go-ahead today

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Metcash Limited's (ASX: MTS) has been given the nod for its acquisition of a 70% majority stake in Total Tools Holdings Pty Ltd for an estimated $57 million. The Australian Competition & Consumer Commission (ACCC) announced today it would not oppose the Metcash acquisition.

Metcash is a wholesaler and retailer of hardware and home improvement products through its Independent Hardware Group (IHG). Total Tools is a leading participant in Australia's professional tool segment.

The ACCC decision

The ACCC said Metcash's acquisition would enhance competition with Bunnings in multi-category hardware stores. Bunnings is owned by Wesfarmers Ltd (ASX: WES).

ACCC chair Rod Sims said:

We saw that generally Mitre 10 focuses on DIY customer and those looking for convenience, while Total Tools mainly attracts trade customers because of their extensive range of trade quality products and specialised staff.

We have seen a lot of activity in the tool industry this year. Bunnings is the clear market leader, and with IHG increasing its footprint, any further consolidation of the tool market at a national, state or local level will be scrutinised closely.

The Metcash acquisition

The acquisition includes franchisor operations and one company-owned store. Over time, it will become a mix of independently owned and joint venture retail stores.

In addition, Metcash will provide Total Tools with a $35 million debt facility to support its growth plans and the future acquisition of an ownership interest in a select number of stores. 

Moving forward, the acquisition will include a pathway for Metcash to acquire the remaining 30% within the next 4 years. 

Metcash CEO Jeff Adams said in July the acquisition of Total Tools enhanced Metcash's position in the hardware market. It would benefit independent retailers in both Total Tools and the independent Hardware Group, and aligned with Metcash's purpose of "championing successful independents", he said.

Mr Adams went on to say:

The acquisition is being funded out of existing cash reserves. The equity raising in April strengthened our balance sheet and provided us with the flexibility to execute on strategic acquisitions such as Total Tools.

In morning trade, the Metcash share price is down 2% and is trading at $2.90.

Motley Fool contributor Matthew Donald owns shares of Wesfarmers Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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 Scott Phillips.

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