UPDATE 1-Australia's Metcash makes bid for Mitre 10

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MELBOURNE Nov 27 (Reuters) - Australian grocery wholesaler Metcash Ltd (MTS.AX) sought on Friday to expand into the $20 billion domestic home-improvement market, making a takeover bid for the country's biggest independent hardware chain, Mitre 10.

Metcash is directly challenging the two biggest players in hardware, top supermarket chain Woolworths Ltd (WOW.AX), which announced its own plans to move into home improvement recently, and market leader Bunnings owned by Wesfarmers Ltd (WES.AX).

Metcash did not disclose the terms of its offer, noting only that the initial bid was for 50.1 percent of the chain of more than 400 stores, with the potential to extend to 100 percent in 2012 or 2013.

Metcash shares were down 0.9 percent, beating the broader market's 2.7 percent slide, as supermarkets and consumer staples generally did better than discretionary retailers in Friday's weak market.

"Recent developments in the hardware sector have materially changed the landscape and outlook for independent operators," Metcash Chief Executive Andrew Reitzer said in a statement.

Metcash had opposed Woolworths' move in August to expand into the hardware market in a joint venture with the No. 2 U.S. home improvement chain, Lowe's Companies (LOW.N).

Metcash said the deal would diminish competition, but regulators cleared the Woolworths-Lowe's plan on the grounds that the market was highly fragmented, with Bunnings holding an 18 percent share and the rest shared by a number of smaller players.

Separately, Bunnings said on Friday it would invest A$420 million to open 12 new stores in New South Wales, the country's most populous state, over the next three years.

(Reporting by Victoria Thieberger; editing by Mark Bendeich) ((victoria.thieberger@reuters.com; +61 3 9286 1421; Reuters Messaging: victoria.thieberger.reuters.com@reuters.net))

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