Supermarket giant Woolworths Ltd is to enter the hardware sector...

Supermarket giant Woolworths Ltd is to enter the hardware sector with a takeover offer for Australia's second largest hardware retailer Danks Holdings Ltd.

Woolworths said on Tuesday it had entered into an equity agreement with US home improvement retailer Lowe's Companies Inc to make the takeover, which has been unanimously recommended to Danks shareholders by the company's board.

Woolworths chief executive Michael Luscombe said the Australian home improvement sector was under-serviced and the company sees an opportunity to bring competition and growth to the sector.

"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 in a statement.

The Woolworths and Lowe's joint venture have offered $13.50 per Danks share, valuing the company at $87.6 million.

They will also pay a 53 cent dividend per share.

Danks supplies 205 Home Timber & Hardware stores, 312 Thrifty-Link Hardware stores, 66 Plants Plus Garden Centre stores and 939 independent hardware stores.

Mr Luscombe said Woolworths had been studying the home improvement sector, and believed its supply platforms and global sourcing and distribution capabilities would ensure it was well placed to take on Wesfarmers'-owned Bunnings.

"We're interested in adding choice to the industry and we believe we can improve the pricing, product range and experience for customers," he said.

"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."

Woolworths has targeted 150 new store sites, which could create thousands of new jobs, it said.

Its first home improvement store is expected to open in late 2011.

The Danks acquisition will have a positive earnings before interest and tax (EBIT) and earnings per share contribution from day one, Woolworths said.

There will be significant synergies between the businesses, it said.

The offer, which will last for six weeks, requires a minimum 90 per cent acceptance from Danks shareholders.

It is also subject to regulatory approval.

Woolworths' joint venture with Lowe's will see the US company own a one-third share of the new home improvement business.