Woolworths and US retail giant Lowe’s launch takeover for Danks hardware group

Woolworths has finally made its much-anticipated entry into Australia’s $24 billion hardware market by launching an $87 million takeover bid for Australia’s second largest hardware group, Danks Holdings.

The board of Danks, which supplies 205 Home Timber & Hardware stores, 312 Thrifty-Link Hardware stores, 66 Plants Plus Garden Centre stores and 939 independent hardware stores, has unanimously recommended the deal to investors, effectively bringing the curtain down on the company’s 150-year history.

The Danks family controls just under 49% of the company. Managing director Graeme Danks said the deal, priced at 65% above the company’s share price at the close of trade on 24 August, represents a “great opportunity for Danks shareholders and the Danks business.”

“For our retail customers and employees, this marks the start of an exciting new era for Danks, building on 150 years of history and providing a strong platform for the next phase of growth.”

Woolworths has also announced it will enter a joint venture with US-based retail giant Lowe’s. The two companies aim to develop a network of stores around the country, with the first warehouse store to be open in late 2011.

Woolworths eventually wants to have 150 stores. It says it has already secured 12 sites and is in talks to grab another 15. Most of the new stores will be over 10,000 square metres in size.

Australia’s largest retailer has long coveted a piece of the booming hardware market, which is dominated by the Bunnings chain, owned by Wesfarmers (which also owns the Coles supermarket chain).

Bunnings has 175 warehouse-style stores around Australia and had earnings of over $650 million last financial year.

“Woolworths has studied the category for a considerable period of time and believes its best-in-class supply platforms along with its global sourcing and distribution capabilities will ensure it is well placed, together with Danks and Lowe’s, to grow Australia’s hardware sectors,” Woolies chief Mike Luscombe said in a statement.

“There is real opportunity to increase the overall size of the sector and this significant new distribution and retail investment should be positive for both customers and the industry alike.

“At the moment, the sector is dominated by one major big box player, so there is a real opportunity for increased competition in that part of the sector.”

The decision to enter the hardware section in conjunction with Lowe’s is something of a surprise. The US company will own a third of the joint venture and will provide Woolworths with valuable management experience in the area; it is the second-largest hardware chain in the US, with annual sales of $US48.2 billion.

Woolworths had previously examined a takeover of the Mitre 10 hardware chain, but the structure of this business (it is a cooperative, with most of the store owners also shareholders) made a deal difficult.