Negotiations begin on Masters’ exit strategy.
Woolworths and Lowe’s have failed to agree on a final valuation on the exit price of struggling home improvement chain, Masters, after investing $3.5 billion for its establishment in 2009. The two companies are now seeking independent valuations to arrive at a price.
The companies failed to reach an agreement on the value of the stake within the five business days set out in the put option process and must now obtain independent expert valuations within 15 business days. If they fail again to come to an agreement on price, Woolworths and Lowe’s will seek a third, joint valuation that is within the range of the other price valuations and to be disclosed within 10 days.
“Our view is there will be three independent expert reports,” an analyst has said.
“Given what is on the line I don’t think either Woolworths or Lowe’s would be impartial. Lowe’s thinks Masters is worth a lot, while Woolworths thinks the chain is worth very little. Given the quantum of value that’s available, it has to go to an independent expert.”
The Australian Competition and Consumer Commission has indicated it would like to see Masters stores sold to buyers other than Bunnings, such as a new entrant, Metcash’s Mitre 10 or independent retailers.
Documents lodged with the corporate regular show Masters made a capital call on Woolworths and Lowe’s on December 31, 2015 as it sought $75 million in funds to bolster its balance sheet. Woolworths injected $50 million, reflecting its two-third ownership position, while Lowe’s poured in $25 million.
Woolworths is also reviewing the $2.8 billion carrying value of the Masters business on its books, which is expected to lead to a significant non-cash impairment in its fiscal 2016 accounts, as high as $1 billion, according to some analysts.