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Orchard Supply Acquisition Boosts Lowe’s In California

Today, the Lowe’s Cos. announced it has entered into an asset purchase agreement with bankrupt Orchard Supply Hardware. Upon the transaction’s completion, subject to bankruptcy court approval, Lowe’s will expand in California via Orchard’s smaller-format metro store locations.

In the deal, Lowe’s asserted that it will acquire the majority of Orchard’s assets for $205 million in cash, plus the assumption of payables owed to Orchard’s supplier partners. Lowe’s maintained it would operate Orchard as a separate, standalone business, retaining its brand under the leadership of the company’s current management team.

Based in San Jose, Orchard currently operates 91 neighborhood hardware and garden stores primarily located in densely populated California markets, Lowes noted. Under the terms of the transaction, Lowe’s would acquire at least 60 of these stores based upon further due diligence, the company related. On average, the Orchard stores, which focus on paint, repair and backyard product categories, operate 36,000 square feet of selling space as compared to 113,000 square feet of selling space for an average Lowe’s home improvement store.

In regards to the deal, Robert Niblock, Lowe’s chairman, president and CEO, commented, “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. Overall, Orchard’s business model offers great potential, but it has been burdened with a high level of debt. With the debt addressed through the Chapter 11 process and appropriate support from Lowe’s, we believe that Orchard will be positioned for profitable growth as a standalone business within our portfolio.”

Orchard’s fiscal 2012 annual revenue was $657 million, Lowe’s pointed out. Lowe’s currently operates 110 stores in California.