Lowe's Closing In On Rescuing Orchard Supply Hardware

Lowe's (NYSE:LOW) has passed another hurdle in its effort to take over regional hardware chain Orchard Supply Hardware. The former Sears (NASDAQ:SHLD) unit, which filed for Chapter 11 bankruptcy in June, has attracted no bids from other buyers, according to Chain Store Age.

The deadline for that was last Friday (Aug. 9). The lack of competing bids clears the way for Lowe's to acquire most of Orchard Supply's assets, including 72 stores, for $205 million in cash. Lowe's will also pick up all the payables owed to Orchard Supply's suppliers. The deal will be presented to the bankruptcy court for approval on Aug. 20, and Lowe's expects to complete the acquisition by the end of August.

What Lowe's won't be doing is absorbing the 91-store chain, which started in the San Francisco Bay Area and has expanded to Southern California and Oregon. Orchard Supply's stores are typically smaller and more upscale than Lowe's big-box stores, and more focused on small hardware and garden. Lowe's said it plans to run at least 60 of the Orchard Supply stores as a standalone division without changing the branding or executive management.

That suggests Lowe's doesn't think anyone else could have done better with the chain after Sears, which bought the chain in 1996, spun it off as a public company in 2012. At the time, retail analysts said the move would be good for Orchard Supply, which was growing while Sears itself was struggling. And in fact Orchard Supply continued to grow, expanding into Oregon in April 2013. Two months later it couldn't pay its bills and filed for bankruptcy.

The real question is how much leverage Lowe's will get from Orchard Supply after bailing it out. The smaller chain is well positioned in Southern California, where Lowe's wants a bigger footprint—but presumably with its bigger stores. Without rebranding Orchard Supply as "Lowe's Lite," it's hard to see how Lowe's can achieve that goal.

For more:

- See this Chain Store Age story

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