WOOLWORTHS' profits would rise 5 per cent and the retailer could generate $161 million in cash by pulling the plug on the loss-making Masters chain, according to Deutsche Bank.
Woolworths, which has invested $2.2 billion into its home-improvement joint venture with United States retailer Lowe's since 2009, would have to book $1.6 billion in non-cash asset write-downs if the board bowed to shareholder pressure and agreed to close or wind up Masters.
However, winding up Masters would realise net cash of $241 million - $161 million for Woolworths and $80 million for Lowe's - according to Deutsche Bank analyst Michael Simotas.
The joint-venture partners could raise as much as $1.24 billion by selling Masters stores and undeveloped sites and liquidating inventories. However, it would cost Woolworths and Lowes $1 billion to exit leases and pay redundancies, trade and other payables.
The Deutsche Bank report will increase pressure on the Woolworths board to bite the bullet on Masters, which lost $245 million last year and is forecast to lose $236 million during the next 12 months.
"If the format was shut, these losses would no longer be incurred," Mr Simotas said.
Morgan Stanley analyst Tom Kierath estimated in July that Woolworths could realise $600 million to $1 billion after exiting leases, selling stores and inventory, paying out redundancies and buying Lowe's stake for $502 million.
However, Citigroup analyst Craig Woolford said in April that Woolworths faced a net loss of $300 million to $900 million if it pulled the plug. It would cost Woolworths $1.6 billion to exit leases, clear inventory and buy Lowe's one-third stake, but Woolworths could recoup up to $970 million from selling the properties and inventory.
Woolworths has no doubt done its own analysis, providing plenty of food for thought for new chairman Gordon Cairns.
Mr Cairns has indicated to investors he is less wedded to Masters than former chairman Ralph Waters and outgoing chief executive Grant O'Brien, the architect of the home-improvement strategy.
Analysts believe Mr Cairns and the Woolworths board might make a decision on Masters' future before the retailer appoints a new chief executive, because it would be easier to secure the right candidate if tough decisions had already been made.
"But he [Mr Cairns] wants to make a decision based on facts," one analyst told Fairfax Media this week.
The clock is ticking on the six-year-old joint venture, as Lowe's can officially exercise its put option any time after October 20, giving Woolworths 13 months' notice to buy its stake.
Lowe's put option is in Woolworths' books as a $886 million non-current liability, but the strike price of the option is based on "fair value" at the time of exercise.
Analysts have previously suggested that Woolworths would have to pay $500 million to $900 million for Lowe's stake.
Mr Simotas said if Masters were wound up, fair market value would be zero on a going-concern basis.
