A possible deal looms between two leading hardware specialists, putting the industry on edge.

A speculated $2 billion merger deal between Mitre 10 and Home Timber & Hardware Group would create a network of between 800 and 900 stores, and could harness buying power to fight Bunnings on price and brands, according to media reports. However, Bunnings has reportedly reserved at least 15 Masters sites, if the business was to liquidate.

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Hardware expert Geoff Dart said Home’s trade sales were worth about $350 million, and Mitre 10’s totalled about $450 million compared to $1.5 billion in trade sales at Bunnings.

“I find it hard to believe Bunnings is worried about Home-Mitre 10 on the retail side, but it would be more of a challenge…on the trade side, which is the strength of Home and Mitre 10,” Dart said.

“It’s an exciting time for the industry, but suppliers are really the ones who are going to have to look at channel strategies, what they do, where they seek growth,” Dart said.

“For suppliers who are in both Bunnings and Masters, they will be fine because their customers will just go to Bunnings … but the suppliers that aren’t there, it will be challenging for them.”

The proposed corporate activity could chart the course of Australia’s home improvement sector for the next 10 years, and that will mean big changes for shoppers and suppliers in this $46 billion sector, according to Dart.

Morgan Stanley analyst, Tom Kierath, said Mitre 10 managing director, Mark Laidlaw said at the strategy presentation it was interested in buying Home or putting the two businesses together.

Bank of America Merrill Lynch analyst David Errington has valued the Danks business, which includes the Home Timber and Hardware chain, Thrifty-Link Hardware and the Plants Plus brand at about $200 million.

Danks earnings were bolstered by its acquisition of Hudson Timber and Hardware and Belmont Timber last financial year. Its earnings have almost doubled since the business was bought by Woolworths and its hardware partner US retailer Lowes in 2009.