Smith & Hawken gardening chain faces liquidation

By Tom Hals

WILMINGTON, Del., July 7 (Reuters) - Smith & Hawken will call in the liquidators for its 56 stores unless the corporate parent of the premium gardening chain and catalog company reaches a last-minute deal with potential buyers, according to sources close to the negotiations.

The Scotts Miracle-Gro Co (SMG.N) of Marysville, Ohio, purchased the chain for about $70 million in 2004. Smith & Hawken has been losing money as the U.S. recession has discouraged spending on the company's luxury and leisure items, such as a $600 hammock stand made of cypress.

"We're fighting for our lives but the tide is against us," Pat Farrah, Smith & Hawken's chief executive, told Reuters by telephone.

The 700 employees of the Novato, California-based company will be notified in the coming days if no deal is reached, according to sources. A liquidator, Gordon Brothers Group of Boston, is already on site and could begin the going-out-of-business sale as soon as Thursday, these sources said.

Gordon Brothers Group could not be reached for comment.

Jim King, a senior vice president of Scotts, said the company decided after a portfolio review last year that Smith & Hawken wasn't a core business. He said Scotts would prefer to sell the business, which he said had 2008 revenue of around $150 million.

Last year, Scotts brought in Farrah, who helped lead Home Depot's rapid expansion during its infancy, to turn around Smith & Hawken.

He closed poor performing stores, cut overhead costs and changed the mix of merchandise.

"Those benefits of those changes were just arriving," said one source.

Still, the chain's sales were down 22 percent during the first two quarters of the current fiscal year, according to the company's financial statements.

Farrah participated in one group that recently put forward a bid offering to infuse more than $20 million into the company and take on all liabilities such as leases, according to the sources.

The financial backers behind the proposal wanted until the middle of August to go through the chain's books, the sources said, but Scotts balked at the delay and barring any last minute deal, they plan to shut the business down.

"They chose to ignore overtures and decided to liquidate," said one source close to the negotiations.

Scotts has said it intended to use the Smith & Hawken chain, which was founded by an organic gardener and features plantation teak furniture, to expand its product line beyond its reliance on fertilizers and Ortho weed killers.

Scotts had planned to bring the Smith & Hawken products to the retailers such as Home Depot where it sold its core brands. Smith & Hawken is currently available in Target stores, for example.

Scotts chairman and chief executive officer, Jim Hagedorn, said during an earnings conference call in February that he had not sold the business because he could not find an acceptable offer.

"I'm not writing a check to someone to take it," he had said. "So, if we can't sell it in this environment, we're going to run it hard."

Scotts' chief operating officer, Mark Baker, said during a conference call in April that he expected the chain to post a wider loss this year and that the company planned "dramatic steps" to lower the cost structure of the business.

In contrast to Smith & Hawken, Scotts in June raised its earnings outlook for this year.

"Scotts business is going very well, which probably worked against us," said one source who was close to the Smith & Hawken negotiations. (Reporting by Tom Hals; Editing by Tim Dobbyn)