US home-improvement retailer Lowe's to buy Orchard Hardware $205 mn

US home-improvement retailer Lowe's Cos today agreed to buy Orchard Supply Hardware Stores Corp, $205 million.

The move comes eight months after Lowe's, the world's second-largest home improvement chain, withdrew its $1.8 billion unsolicited bid for Canadian home improvement retailer Rona Inc. (See: Lowe's withdraws $1.8 bn bid for Canadian home improvement retailer Rona)

Under the deal, Orchard will propose in a bankruptcy filing today that it would sell Lowe's at least 60 of its 91 stores, for $205 million in cash, plus the assumption of debt owed to nearly all its suppliers.

To facilitate the sale and restructure its balance sheet, Orchard has filed voluntary Chapter 11 petitions in the US Bankruptcy Court for the District of Delaware.

The transaction is expected to be finalised through the bankruptcy court and is subject to an auction. The agreement with Lowe's will serve as the "stalking-horse bid" in the auction process.

Under the terms of the deal, Lowe's would receive a break-up fee of 3 per cent of the purchase price should it not be successful in acquiring Orchard.

In addition, subject to court approval, for an alternative bidder to be successful, it must outbid Lowe's by a minimum of $12 million, representing $5 million in addition to the break-up fee and an expense reimbursement of $850,000.

Orchard expects to operate its business as usual during its financial restructuring. It said that it has secured commitments for $177 million in debtor-in-possession financing from Wells Fargo, its existing lender.

The acquisition will allow Lowe's to expand through a new store format and reach a new customer base in California with the addition of Orchard's smaller-format metro store locations.

Lowe's plans to operate Orchard as a separate standalone business, and retain its brand under Orchard's current management team.

Based in California and with fiscal 2012 annual revenue of $657 million, Orchard currently operates 91 hardware and garden stores primarily located in densely populated markets in California.

Orchard stores, which offer a product selection focused on paint, repair and backyard categories, include approximately 36,000 square feet of selling space, compared to 113,000 square feet of selling space for an average Lowe's home improvement store.

Lowe's currently operates 110 stores in California.

"Orchard's neighborhood stores are a natural complement to Lowe's strengths in big-box retail, offering smaller-format hardware and garden stores catering to the needs of local customers. Strategically, the acquisition will provide us with immediate access to Orchard's high density, prime locations in attractive markets in California,'' said, Robert Niblock, chairman, president and CEO of Lowe's.

Founded in 1946, Lowe's has grown from a small hardware store to the world's second-largest home improvement retailer behind Home Depot.

Lowe's stores stock 40,000 products in 15 product categories ranging from appliances to tools, to paint, lumber and nursery products through more than 1,745 stores in the US, Canada and Mexico.

Lowe's, a Fortune 100 company, has a market cap of $44.1 billion and reported revenues of $50.5 billion last year.