Woolworths may not see a cent from the sale of its ill-fated Masters Home Improvement business and may even end up incurring further costs after its US joint venture partner Lowe's launched legal action to install a liquidator to wind up the business.
Analysts fear Woolies may not see any return from the Home Consortium's $750 million bid for the Masters joint venture vehicle Hydrox Holdings, money chief executive Brad Banducci has already earmarked for store refurbishments this financial year.
![Lowe's legal action is expected to impact any proceeds that eventually come from Woolworths' exit from hardware.](/web/20160902202111im_/http://www.theage.com.au/content/dam/images/g/r/3/l/5/e/image.related.articleLeadwide.620x349.gr4dqj.png/1472610557450.jpg)
Woolworths announced three transactions worth a total of $1.5 billion last week for the sale of the Home Timber & Hardware network to Metcash as well as the Masters properties to the Home Consortium and a $500 million deal with GA Australia to sell off the Masters stock.
Woolworths indicated it expected to reap "approximately $500 million after wind-down costs and prior to any shareholder payments" from the three deals, however the legal action has put the inter-linked transactions at risk.
Retail insiders suggest Lowe's legal action is designed to extract a bigger share of any sale proceeds but it's also raised concerns over whether a shortfall in the return could hurt Woolworths' supermarket turnaround plans.
As part of its full-year results last week, Woolworths announced plans to upgrade 80 stores this financial year and a spokesperson for the supermarket chain said on Tuesday the store renewals would take place this year "as announced".
But Baillieu Holst analyst Mathan Somasundaram said the announcement of the hardware deals a day before its full-year result last week looked hasty and the legal action had raised questions about what it will reap from the transactions if anything.
"It just felt like Woolworths threw this down as a get-out-of-jail-free card last week before releasing a really messy full-year result," Mr Somasundaram said.
Another source close to Australia's biggest supermarket chain was less sympathetic and said this was just another example of Woolworths rushing through an announcement before a result.
"This follows the chief executive appointment, where Woolworths has gone about something to get it done by a result and there's risks to shareholders in doing that," he said.
"The announcement of this [deal] before anything was signed was extraordinarily aggressive and it's blown up in their face, they've gambled and it hasn't worked out so far and they might end up losing."
The analyst said the Lowe's legal action ended up reflecting badly on Woolworths at a time when it couldn't afford to be distracted from its core, supermarket business.
It just felt like Woolworths threw this down as a get-out-of-jail-free card last week before releasing a really messy full year result
Mathan Somasundaram
"This puts the whole thing in question ... I don't think much will change with the $500 million [proceeds] but what are the net proceeds that will go back to Woolworths shareholders?
"Lowe's are clearly saying that they think their put option is worth a lot more than the proceeds they are receiving."
There is also talk that the sale process, which was run by Citi did not go smoothly and sources close to the deal suggest Lowe's may feel the process was detrimental to the final outcome.
"Lowe's knows Woolworths want this sold yesterday ... for Lowe's it's not a lot of money but it's face and in that scenario Lowe's has time and Woolworths doesn't," he said.
The Home Consortium, which has struck a $750 million deal to buy Hydrox Holdings' portfolio of 61 Masters properties and 21 development sites is believed to be confident it has a binding contract.
The Home Consortium bid is backed by the families behind the Spotlight, Aurrum and Chemist Warehouse businesses and it has already struck "preliminary agreements" to lease the space to popular retail chains including JB Hi-Fi, the Good Guys and Super Cheap Auto.
Lowe's has accused Woolworths of acting in "bad faith" and filed an urgent application with the Federal Court of Australia seeking the appointment of an independent liquidator to Hydrox Holdings to "oversee the equitable and orderly wind up" of the operation.
The matter is set for another hearing before Justice Lindsay Foster on Wednesday.
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