Lowe's Companies Inc
) recently announced that it has entered into an agreement with
the local hardware store operator,
Orchard Supply Hardware Stores Corporation
) to buy the majority assets of the latter for $205 million in
This announcement is a crucial move on Lowe's part as
increasing square-footage in the key California market brings
significant opportunities for the company to improve its top line
Lowe's currently operates through 110 stores in California.
However, its presence is significantly lower than its competitor,
The Home Depot, Inc
) and arguably one of the reasons why it has been lagging the
latter in terms of performance. Orchard has 91 neighborhood
hardware and garden stores of which Lowe's would acquire at least
Orchard's smaller-format stores located at prime locations of
the region are likely to bolster Lowe's positioning in
California's housing recovery and facilitate the company to
capitalize on the under-penetrated markets.
Going forward, this Zacks Rank #3 (Hold) company stated that
upon completion of the deal, it will retain the Orchard brand and
the current management team. Alongside, Orchard will operate as
an individual unit.
Orchard, which was spun off by
Sears Holdings Corporation
) in 2012, has filed a voluntary Chapter 11 bankruptcy petition.
Hence Lowe's offer will essentially serve as the "stalking-horse
In the absence of competing bids, Lowe's will acquire
Orchard's assets, subject to the consent of the Bankruptcy Court.
On the flipside, Lowe's would receive a break-up fee of 3% of the
purchase price if it fails to acquire the company. Moreover, an
alternative bidder has to outbid Lowe's by a minimum of $12.0
HOME DEPOT (HD): Free Stock Analysis Report
LOWES COS (LOW): Free Stock Analysis Report
ORCHARD SUPPLY (OSH): Get Free Report
SEARS HLDG CP (SHLD): Free Stock Analysis
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