* Lowe's to be "stalking horse" bidder
* Lowe's plans to operate Orchard as separate business
* Orchard's total liabilities $480.1 mln; total assets $441
* Orchard expects to complete bankruptcy process in 90 days
(Adds analyst comments, share movement)
By Sakthi Prasad
June 17 Orchard Supply Hardware Stores Corp
, spun off by Sears Holdings Corp less than two
years ago, has filed for Chapter 11 bankruptcy protection partly
blaming hefty dividends paid out to its former parent.
Rival retailer Lowe's Companies said it would buy at
least 60 of Orchard's 91 neighborhood hardware and garden stores
in California for about $205 million and also assume payables
owed to nearly all of Orchard's suppliers.
Orchard shares were up 22 percent at $2.30 in early trading
on Monday. The stock had fallen about 50 percent from early June
up to Friday's close.
Orchard said in a court filing that it was carrying a high
debt load and that it may not be able to make payments when the
first tranche matures in December.
The company, which generated revenue of $657 million in
fiscal 2012, listed total liabilities of $480.1 million and
total assets of $441 million.
"The company's substantial debt due, in part, to significant
recapitalization dividends paid to Sears, made it difficult, if
not impossible for the company to right itself," Orchard said.
Management and the board determined that a sale of Orchard
through a Chapter 11 process was the best possible outcome for
the company and its stakeholders, Orchard said.
The company has secured commitments for $177 million in
debtor-in-possession financing, which will help it meet
financial obligations through the bankruptcy.
LOWE'S TO ACT AS "STALKING HORSE"
Orchard said Lowe's would act as a "stalking horse bidder,"
setting a minimum offer for the business, which could still be
topped by others.
If there are no competing bids, the home improvement
retailer will acquire Orchard's assets after obtaining
bankruptcy court approval.
Lowe's plans to operate Orchard as a standalone business,
retaining its brand and management.
"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," said Robert Niblock, Lowe's chairman,
president and chief executive.
Orchard said it expects the bankruptcy process to be
completed in about 90 days.
"This transaction is both a smart and modest capital
investment to attack a critical real estate shortcoming that
Lowe's has relative to Home Depot," Janney Montgomery
Scott LLC analyst David Strasser wrote in a note.
Lowe's lacks conveniently located stores in key metro
markets compared to Home Depot, and this deal could bridge that
gap, particularly in markets like California, Strasser added.
The analyst has a "neutral" rating on Lowe's stock.
Lowe's shares were up less than 1 percent at $41.42.
The case is in re Orchard Supply Hardware Stores, Case No.
13-11565, U.S. Bankruptcy Court, District of Delaware.
(Reporting by Sakthi Prasad and Siddharth Cavale in Bangalore;
Editing by Patrick Graham, Greg Mahlich and Roshni Menon)