Lowe’s Companies, Inc. (NYSE: LOW), the world’s second largest home improvement retailer, today announced it has entered into an asset purchase agreement with Orchard Supply Hardware, under which Lowe’s will acquire the majority of Orchard’s assets for approximately $205 million in cash, plus the assumption of payables owed to nearly all of Orchard’s supplier partners. Upon completion of the transaction, the acquisition will enable 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 have Orchard operate as a separate, standalone business, retaining its brand under the leadership of Orchard’s current management team.
Based in San Jose, California and with fiscal 2012 annual revenue of $657 million, Orchard currently operates 91 neighborhood hardware and garden stores primarily located in densely populated markets in California. Under the terms of the transaction, Lowe’s would acquire at least 60 of these stores based upon further due diligence on the locations. On average, the 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.
The transaction is expected to be consummated through a court-supervised process under Section 363 of the U.S. Bankruptcy Code and is subject to an auction and Bankruptcy Court approval. The agreement with Lowe’s will serve as the “stalking-horse bid” in the auction process. Earlier today, Orchard filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
Robert A. Niblock, Chairman, President and CEO of Lowe’s, said, “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, where Lowe’s is currently underpenetrated, and will enable us to participate more fully in California’s economic recovery.