Mitre 10 considers bids from Metcash and private equity

Hardware chain Mitre 10 will consider separate bids from Metcash and an unnamed private equity company as it prepares to take on the new threat of competition from Woolworths’ new hardware business.

Australia’s second largest hardware chain called for proposals from interested parties are what Mitre 10 chief executive Mark Burrowes described as one of the most challenging years in the company’s history, when the company slumped to a $11.7 million loss.

Late on Friday, Metcash launched a bid for 50.1% of Mitre 10 immediately, with the potential to move to 100% in 2012 or 2013. The deal is reportedly valued at between $50 million and $70 million.

Hours later, a private equity firm that has not been named announced it had also made a bid. It is believed this bid is on similar terms to the Metcash proposal.

Metcash chief executive Andrew Reitzer said the deal would allow Metcash to use its merchandising, brand management and logistics strength to help growth the Mitre 10 brand as competition increases from the establish leader Bunnings and the new entrant, backed by Woolworths and US retailer Lowe’s.

Woolworths’ recent acquisition of the hardware wholesaler Danks was the first step in its plans to develop 150 big-box hardware warehouses using a similar model to Bunnings. Mitre 10 bitterly opposed that deal, warning that it could lead to the establishment of a duopoly in the hardware sector.

“Recent developments in the hardware sector have materially changed the landscape and outlook for independent operators,” Reitzer said in a statement.

“Based on our experience and success in the competitive food and liquor sector, a Metcash backed Mitre 10 wholesaler will enable Mitre 10’s retail customers to compete more effectively in an increasingly competitive marketplace.”

Mitre 10, which controls 7% of Australia’s $36 million hardware sector, supplies around 450 independent hardware stores.

The complex structure of the company looms as something of a stumbling block in any deal. The complex cooperative structure means that any deal must win 75% approval of the independent retailers.

Burrowes is expected to recommend one of the bids to the Mitre 10 board in the next few weeks, with a vote of shareholders unlikely to take place until the first quarter of next year.