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Orchard Supply Hardware Reaches Acquisition Agreement with Lowe’s as Part of Company’s Voluntary Chapter 11 Filing

  Orchard Supply Hardware Reaches Acquisition Agreement with Lowe’s as Part of
  Company’s Voluntary Chapter 11 Filing

  Stores to Continue Operating as Usual; Commitment for $177 Million in DIP
                                  Financing

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

Business Wire

SAN JOSE, Calif. -- June 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 growth strategy.

“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.”

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 suppliers@osh.com.

Orchard is advised in this transaction by Moelis & Company, FTI Consulting,
and DLA Piper.

About Orchard

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.

Contact:

Orchard Media Contact:
Leigh Parrish, FTI Consulting
212-850-5651
leigh.parrish@fticonsulting.com
or
Orchard Investor Contact:
Matt Gross, FTI Consulting
212-850-5659
matthew.gross@fticonsulting.com
 
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