Out and back: Lowe's Cos. 'aggressive reach beyond North America proved no match for an entrenched rival, prompting a boomerang by the giant retailer.

• Author: Martin, Edward

It's November on the other side of the world, and in Grafton, about 400 miles north of Sydney, Australia, a canopy of jacaranda trees covers the town of 18,000 like a blue blanket. The annual festival celebrating them is wrapping up, tourists are leaving, and petals flutter down to form a fragrant carpet on streets and playgrounds. On the outskirts, another scent hangs heavier.

Under a sign that sports a giant red hammer and the sponsor's name, Bunnings, customers queue up to grills. Volunteers tend them, which, like the tents and gas, are provided by the big home-improvement store chain. "Cook onions," the manager suggests. "The smell attracts hungry people." Today, Happy Paws, a pet-rescue nonprofit, might net several thousand dollars at what's known as a "sausage sizzle," community events where civic groups nationwide raise millions. (Imagine a spicy, pale hot dog.) "People absolutely love them," says Jason Murphy, a millennial in Melbourne who began visiting the events as a kid. "It gives you a community feel."

Inside a similar store 60 miles down Australia's eastern Pacific coast in Coffs Harbour, it smells of fresh paint and concrete poured a year earlier. North Carolinians could confuse its blue front with their hometown Lowe's, down to the words "home improvement."

Its sign says Masters, though, and Tar Heel customers, who've shopped for 71 years at the state's greatest retail success story, would be jolted by the yellow "store closing" banner hanging limply across the building this morning. As the automatic doors wheeze open and shut, signs flank them warning, "Last 5 days."

It's been eight years since Lowe's Cos. forged a joint venture with Australian retail giant Woolworths Ltd. to dethrone Bunnings, a long-established hardware chain. The announcement came as the U.S. housing market was crashing, while Australia was one of the few major world economies still growing. But in the end, Bunnings' hammer came down hard, smashing Lowe's and its now estranged partner and their Hydrox Holdings joint venture.

Woolworths' losses could total $3 billion to $4 billion, while Lowe's, currently locked in acrimonious, court- ordered arbitration, will probably write off less than the nearly $1 billion it initially invested in 2009. The first of the 150 planned Masters stores opened two years later, in 2011. By the time Masters wound down last year, hemorrhaging $200 million or more annually, only about 60 stores were built.

At the end of its fourth quarter 2015, Lowe's wrote off $530 million, and nine months later, the corporation swallowed another $290 million in losses. Now, Lowe's and Woolworths are fighting over the value of Masters' carcass. Lowe's values residual inventory, real estate and other assets at $467 million, possibly much more. Woolworths argues Masters is worthless. The relationship has turned testy, marked by a boardroom confrontation in which Lowe's accused Woolworths members of "ambushing" it and employing other nefarious tactics. In response, an Australian federal judge hustled the duo into private arbitration.

Officials of the companies decline to discuss the arbitration talks, citing the court proceedings. Even if it takes a $900 million hit, the Masters experience is not a devastating dent for the North Carolina company started by Lucius Lowe in North Wilkesboro in 1921. It had more than $3 billion in earnings in its recent fiscal year, on sales of about $65 billion. With 2,129 stores, the business is now worth more than $70 billion, making it North Carolina's third-most valuable company behind Bank of America and Duke Energy. The company took only a one-third interest in the Aussie venture and hedged even that with a put option, allowing it to bail...