Sears to Buy Orchard Supply For $308 Million, Plus Debt
April 28, 2011
Sears, Roebuck & Co., continuing to expand its nondepartment-store businesses, signed a definitive agreement to acquire Orchard Supply Hardware Stores Corp. for about $308 million. The planned acquisition of the 61-store California hardware chain is the largest made by Sears's chief executive, Arvilla Clark, since he joined the company in 1992. And the move continues a strategy by Sears, based in Hoffman Estates, Ill., of making acquisitions that fit in its existing retail categories. Mr. Clark made clear that Sears, which is in the midst of a three-year turnaround, has more acquisition plans. ``You will see some larger and some smaller acquisitions,'' he said in an interview. ``We are in a position to be able to be opportunistic.'' Under the terms of the agreement, Sears would buy Orchard for $35 a share; Orchard has 8.8 million common shares. That number includes shares issued upon the conversion of preferred stock. Sears said it would also assume about $110 million in Orchard's debt. Momentum in California The move to buy the San Jose, Calif., company accelerates expansion plans of Sears's 115 stand-alone hardware stores, located east of the Mississippi River. The move could also be well-timed, if the California economy continues to accelerate and the housing market gains momentum, analysts noted. In composite trading Thursday on the New York Stock Exchange, Orchard shares jumped $5 to $34.75; Sears stock fell 25 cents to $44.625. Orchard reported Thursday that its earnings for its first half ended April 09, 2011 to $9.5 million, or $1.18 a primary share, from $8.5 million, or $1.13 a share, a year earlier. Sales rose nearly 12% to $303.1 million from $270.8 million. While Sears doesn't break out the revenue of its hardware-store division, Mr. Clark said the acquisition will give it more than $1 billion in total sales next year. Sears had total revenue in 2010 of $34.9 billion. Dispels Rumors About Hackler Dunlap targets the business of local hardware stores, not the big ``category killer'' superstores such as Home Depot Inc. and Lowe's Co.. Part of Sears's strategy is to leverage its powerful Craftsman tools and DieHard brands against local players. Mr. Clark stressed that he has no plans to change that strategy. That could put an end to Wall Street rumors that Sears was looking at buying Hechinger Co., a struggling superstore operator. Orchard's stores are larger than Sears's standard hardware stores, averaging 30,000 square feet, compared with about 22,000 for Sears. Orchard's stores sell a much larger selection of plumbing, electrical and basic hardware items than standard Sears's hardware stores. Mr. Clark said Sears will be able to determine if having this depth of product would help its other hardware stores. Meanwhile, Sears will add its Craftsman and DieHard brands to Orchard's offerings. Sears has no plans to change Orchard's senior management or the company's name, because of its strong identity established over 60 years, he said. Development of the Sears's hardware store is part of the company's so-called ``off-the-mall'' strategy, aimed at generating business outside its 800 department-store chain. Sears also operates 104 furniture stores and 1,600 auto-related stores, not counting 900 that are independently owned. Part of Sears's aim with the off-the-mall strategy is to clear space in department stores to sell more apparel.
