Woolworths Ltd. and Lowe’s Cos are exiting their unprofitable Australian home-improvements venture after a failed six-year attempt to take on market leader Bunnings Ltd.
Woolworths, which relies on its supermarket chain for most of its income, plans to buy Lowe’s 33.3 per cent stake in the Masters division and then sell or close the business, it said in a statement Monday. Lowe’s is forcing Woolworths to buy the stake under a put option, a liability that Woolworths most recently valued at A$886.5 million ($608 million).
Woolworths stock soared in Sydney as investors preferred the immediate cost of an exit to years of further losses. Chairman Gordon Cairns, who is also looking for a full-time chief executive officer for Woolworths, said Monday it’s not clear how much the entire home-improvements venture may be worth.
“They’ve done pretty much everything they can do to try and get this to work,” said Andrew McLennan, an analyst at Commonwealth Bank of Australia in Sydney. “It hasn’t proved to be successful.”
Woolworths climbed 4.9 per cent to A$23.76 at 11:02 a.m. in Sydney, taking the company’s market value to A$30.2 billion. It earlier rose as much as 7.9 per cent.
Woolworths said it’s reviewing the carrying value of its 66.7 percent stake in the venture -- officially named Hydrox Holdings -- which operates the Masters Home Improvement and Home Timber & Hardware outlets. The carrying amount of the venture’s total net assets was A$2.8 billion as of June 28, 2015, according to Woolworths’ 2015 annual report.
It will take at least two months for Woolworths to take up full ownership, the company said in its statement. Cairns told analysts on a call he’d like to wrap up an exit as soon as possible.
“It will take many years for Masters to become profitable,” Cairns said in the statement. “We have determined we cannot continue to sustain ongoing losses from this business.”
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