NEW YORK (
Orchard Supply Hardware Stores
filed for Chapter 11 on Monday with plans to sell its business in an auction led by a $205 million bid from competitor Lowe's Cos.
Orhcard Supply was losing 15% to $1.79 in mid-day trading. Lowe's was slipping 0.3% to $41.24.
The San Jose, Calif., operator of a neighborhood hardware and garden store chain and affiliates Orchard Supply Hardware LLC and OSH Properties LLC submitted petitions in the U.S. Bankruptcy Court for the District of Delaware in Wilmington.
Judge Christopher S. Sontchi is set on Tuesday to consider first-day motions, including joint administration of the cases, interim use of about $177 million in debtor-in-possession financing and the scheduling of a hearing on proposed bidding procedures.
Lowe's has offered $205 million in cash plus the assumption of payables owed to nearly all of Orchard's supplier partners, according to a Monday statement from Orchard. The Mooresville, N.C., home improvement retailer has agreed to acquire at least 60 of Orchard's 91 stores. The debtor anticipates completing the sale in 90 days.
"We believe that Lowe's offer is a validation of Orchard's unique market opportunity and of our strategy to capture it," Orchard president and CEO Mark Baker said in the statement. "We are confident the steps we are taking today will allow us to achieve our financial and operational goals and are certain we are making the right decision both for our business and for the many individuals and families who depend on Orchard."
Orchard said on completion of the sale, it would operate as a separate, standalone business, retaining its brand, management team and associates. The deal with Lowe's would allow it to benefit from having a financially stable parent while giving Orchard the ability to reposition itself for growth.
In its own statement, Lowe's said it believed the bankruptcy reorganization would allow Orchard to address its burdensome debt and become a profitable company.
"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," Lowe's chairman, president and CEO Robert A. Niblock said in a company statement Monday. "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."