Woolworths plans to enter the domestic hardware market through a takeover of hardware retailer Danks, which owns the Thrifty-Link business and others.
"Wesfarmers had it all their own way with the Bunnings Warehouse business ... and the fact that Woolworths are now moving in to that space with the potential acquisition of Danks then that is clearly creating some competitive concerns," Macquarie Private Wealth client advisor David Halliday said.
Woolworths was up 2.25 per cent at $28.64.Wesfarmers shares fell 6.92 per cent to $24.49 in noon trade.
"The market is concerned about a new competitor in the space," Mr Halliday said.
"Woolworths has shown themselves as a very worthy competitor in food and more recently liquor and hotels and the fact that they are moving in to that space is enough to concern the market about how Wesfarmers might respond."
Mr Halliday said the fact that Wesfarmers was trading ex-dividend on Tuesday was also weighing on the shares.
Woolworths chief executive Michael Luscombe said the Australian home improvement sector was under-serviced.
"There is a 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," he said.
Woolworths has entered into an agreement with US home improvement retailer Lowe's Companies to buy Danks, and the offer has been unanimously recommended to Danks shareholders by the company's board.
The Woolworths and Lowe's joint venture is offering $13.50 per Danks share, valuing the company at $87.6 million.
Miners push shares lower at noonStocks tumble amid investors’ worries
