Stores to Continue Operating as Usual; Commitment for $177 Million in
Under the Lowe’s Proposal, Orchard Will Retain Its Brand, Continue to
Operate Its Stores and Continue Its Repositioning and Growth Strategy as
a Standalone Business
SAN JOSE, Calif.--(BUSINESS WIRE)--Jun. 17, 2013--
Orchard Supply Hardware Stores (NASDAQ:OSH), a neighborhood hardware and
garden store focused on paint, repair and the backyard, today announced
that it has reached an agreement through which Lowe’s Companies, Inc.
(NYSE:LOW) will acquire the majority of its assets for $205 million in
cash, plus the assumption of payables owed to nearly all of Orchard’s
supplier partners. To facilitate the sale and restructure its balance
sheet, Orchard has filed voluntary Chapter 11 petitions in the United
States Bankruptcy Court for the District of Delaware.
The agreement with Lowe’s comprises the initial stalking horse bid in
the Court-supervised auction process under Section 363 of the Bankruptcy
Code. Under the terms of the agreement, Lowe’s would acquire no less
than 60 of Orchard’s stores, based on further due diligence on the store
locations. The Company expects to complete the process in approximately
90 days, pending receipt of the necessary approvals from regulators and
the Bankruptcy Court.
Orchard fully expects to operate its overall business and the vast
majority of its stores as usual during its financial restructuring. To
this end, the Company has secured commitments for $177 million in
debtor-in-possession (“DIP”) financing from Wells Fargo Bank, the
Company’s existing ABL lender, and its Term Loan Lenders which, in
addition to Orchard’s ongoing cash flow, will ensure it is able to
continue meeting its financial obligations throughout the Chapter 11
case. In addition, the Term Loan Lenders have formally agreed to support
the acquisition agreement with Lowe’s as the stalking horse. Orchard
also has filed a series of first day motions seeking authority to pay
employee wages and benefits, honor customer gift cards and Club Orchard
incentives, and otherwise manage its day-to-day operations as usual.
Orchard expects to pay suppliers in the normal course for all goods and
services delivered on or after June 17, 2013. Payment for goods and
services delivered prior to the filing will be addressed through the
Chapter 11 process. It is currently expected that the vast majority of
these claims will be assumed by Lowe’s as part of the sale agreement.
Orchard, which generated revenue of $657 million in fiscal 2012, will
operate as a separate, standalone business at the completion of the sale
process, retaining its brand, management team and associates. The
Company also will benefit from the financial stability of its new
corporate parent which, combined with the benefits of its balance sheet
restructuring, will allow Orchard to continue its repositioning and
“Orchard has consistently delivered an exceptional shopping experience
for our customers and, as we have executed our repositioning strategy,
has also made significant operational improvements to ensure that our
stores are optimally positioned for long-term success,” said Mark Baker,
Orchard President and Chief Executive Officer. “The steps we are taking
today allow us to definitively address our balance sheet issues in order
to fully execute on our brand transformation and growth strategies. We
believe that Lowe’s offer is a validation of Orchard’s unique market
opportunity and of our strategy to capture it. We are confident the
steps we are taking today will allow us to achieve our financial and
operational goals and are certain we are making the right decision both
for our business and for the many individuals and families who depend on
Orchard previously has dedicated considerable effort to addressing the
substantial overleveraging that originated in 2006, when it was still
owned by Sears. Since the spin-out in late-2011, the Company has reduced
its debt and has made significant progress against its strategic
initiatives to project a consistent and compelling brand identity, drive
sales through merchandising and marketing initiatives, improve
operational efficiency, and better align resources and talent, and has
increased year-over-year same-store sales as a result. Still, the
Company anticipated it would not be able to make scheduled payments when
the first tranche of its debt matures in December of 2013 and
accordingly reviewed a range of alternatives to establish a sustainable
capital structure, which would allow it to more effectively run its
business and execute on its repositioning and growth strategy.
Management and the Board of Directors determined that a sale of Orchard
through a Chapter 11 process was the best possible outcome for the
Company and its stakeholders.
“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,” said Mr. Robert A.
Niblock, Chairman, President and CEO of Lowe’s. “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
in a larger way in California’s economic recovery.
“Overall, Orchard’s business model offers great potential, but it has
been burdened with a high level of debt,” Mr. Niblock continued. “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 customers and suppliers can access additional information
about the Company’s Chapter 11 filing on its dedicated website, www.OrchardRestructuring.com.
Orchard also has established a supplier support center, which may be
reached at 855-529-6819 or firstname.lastname@example.org.
Orchard is advised in this transaction by Moelis & Company, FTI
Consulting, and DLA Piper.
Orchard Supply Hardware Stores Corporation operates neighborhood
hardware and garden stores focused on paint, repair and the backyard.
The Company was founded as a purchasing cooperative in San Jose in 1931.
Today the stores average approximately 36,000 square feet of interior
selling space and 8,000 square feet of exterior nursery and garden
space. As of June 16, 2013 the Company has 89 stores in California and
two stores in Oregon. For more information, visit http://osh.com.
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995:
This press release (including information incorporated or deemed
incorporated by reference herein) contains “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are those involving future events and
future results that are based on current expectations, estimates,
forecasts, and projections as well as the current beliefs and
assumptions of the Company’s management. Words such as “guidance”,
“outlook”, “believes”, “expects”, “appears”, “may”, “will”, “should”,
“intend”, “target”, “projects”, “estimates”, “plans”, “forecast”, “is
likely to”, “anticipates”, or the negative thereof or comparable
terminology, are intended to identify such forward looking statements.
Any statement that is not a historical fact and other estimates,
projections, future trends and the outcome of events that have not yet
occurred referenced in this press release, is a forward-looking
statement. Forward-looking statements are only predictions and are
subject to risks, uncertainties and assumptions that are difficult to
predict. Therefore actual results may differ materially and adversely
from those expressed in any forward-looking statements. Factors that
might cause or contribute to such differences include, but are not
limited to, factors discussed under the section entitled “Risk Factors”
in the Company’s reports filed with the Securities and Exchange
Commission. Many of such factors relate to events and circumstances that
are beyond the Company’s control. You should not place undue reliance on
forward-looking statements. The Company does not assume any obligation
to update the information contained in this press release.
Source: Orchard Supply Hardware
Orchard Media Contact:
Leigh Parrish, FTI Consulting
Matt Gross, FTI Consulting