Metcash buys stake in Mitre 10 for $55 million

Grocery wholesaler Metcash has won the battle to take a stake in hardware giant Mitre 10, paying $55 million for a 50.1% stake.

Metcash, which supplies the IGA grocery chain, beat off private equity firm Anchorage Capital in the race to get a stake of Mitre 10, which is struggling to cope with the market dominance of Bunnings and the threat posed by a new hardware joint venture between Woolworths and US hardware retailer Lowe’s .

Under a deal announcement this morning and recommended by Mitre 10’s two boards, Metcash will have the right to acquire the remaining 49.9% of the Mitre 10 Group in 2012 or 2103, ” based on an agreed multiple of earnings”.

“We are delighted to have been selected as the preferred partner for Mitre 10, and believe we can add significant value to Mitre 10’s customers in an increasingly competitive marketplace,” Metcash chief executive Andrew Reitzer said in a statement.

“We can become the ‘champion of the independent hardware retailer’ and help them lift their revenue and profit through Metcash’s strong brand management, logistics and merchandising skills developed over many years.”

The deal will need to be approved by Mitre 10 shareholders, including hundreds of store owners. This means the transaction will not be completed until the end of March 2010.

Mark Burrowes, the current CEO of Mitre 10, will retain his position.

Mitre 10, which controls 7% of Australia’s $36 million hardware sector, supplies around 450 independent hardware stores, was forced to seek investment after what Burrowes described as one of the most challenging years in the company’s history, when it posted a $11.7 million loss.

Mitre 10 has also agreed to pay a break fee of $500,000 to Metcash if Mitre 10 directors withdraw or their support for the deal.