Woolworths Limited to dump Masters: what you need to know

Woolworths Limited (ASX:WOW) has finally found a way to end the losses from its Masters business.

Tim McArthur

Published August 25, 2016 9:26 am AEST

What: December 11 2016 looks set to be the date when Woolworths Limited (ASX: WOW) will close its Masters Hardware store as it failed to steal market share from Bunnings operated by Wesfarmers Ltd (ASX: WES). This after Woolworths announced the decision to call it a day on its foray into the Home Improvement sector.

After entering a trading halt on Wednesday morning, Woolworths issued an ASX announcement late on Wednesday afternoon titled: "Woolworths Update on Home Improvement Exit"

So What: To facilitate the exit Woolworths has entered into three separate contracts which combined will deliver gross proceeds of approximately $1.5 billion to the group.

Metcash Limited (ASX: MTS) will acquire the Home Timber and Hardware Group for $165 million
An auction house has been announced to manage a sell-down of the Masters inventory with the auctioneer providing an underwritten recovery for proceeds of approximately $500 million to the group
A consortium has proposed to acquire 40 Masters trading sites, 21 Masters freehold sites and take on 21 Masters leasehold sites. The consortium plans to repurpose the former Masters sites into multi-tenant large format centres

Now What: Wednesday's announcement brings to an end a dark period for one of Australia's favourite blue chip companies. Shareholders will no doubt be pleased to see the back of the home improvement experiment. Unfortunately the headline $1.5 billion in gross proceeds will provide little comfort with wind-down costs and any shareholder payments expected to reduce net proceeds to around $500 million.

While Woolworths' management has already flagged that it was looking to exit the home improvement business, this latest announcement could be a catalyst for investors to reassess their views on the stock.

Management will once again be free to focus on its core supermarket division without the distraction of stemming the bleeding from the Masters business. With Woolworths scheduled to report on Thursday morning, it will be very interesting to see how the market reacts.

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