The Price Co. announced plans to expand its off-price warehouse operation into the metropolitan New York area in one bold stroke through a $50-million acquisition of at least 81% of the stock in TSS-Seedman's Inc., a 12-store retail chain based in Brooklyn.
Price Co. will convert "some but not all" of the 12 Seedman's stores into Seedman Price Clubs beginning in 1988, Price Chairman Sol Price said Friday. Price declined to be more specific about the ultimate number of Seedman Price Clubs, saying it will depend on "legal factors and physical factors."
TSS-Seedman's, a closely held company with 1986 sales of about $300 million, also has retail operations in Puerto Rico, Price said. President George Seedman was not available Friday for comment on the deal, which will involve all cash or stock and which is scheduled to close by the end of April.
The terms of the deal "envision" Price's acquisition of the remaining 19% of Seedman stock at some future date, the company said in a prepared statement.
Price Co. operates 27 membership-only Price Clubs in California, Arizona, New Mexico, Virginia and Maryland.
Price Co. can afford TSS-Seedman's sale price, having raised $198 million last month in a public offering of convertible debentures. Price had another $190 million in cash and cash equivalents in the bank as of Dec. 21, Vice President Mitchell Lynn said Friday.
The acquisition gives Price a "very strategic position in the New York metropolitan area," Price said. Located on Long Island, in Queens and Brooklyn, Seedman's stores average 190,000 square feet in size, he said, compared with the 120,000-square-foot average of Price Clubs now in operation.
The acquisition is Price Co.'s first and represents a departure from Price's growth strategy which so far has involved developing raw land or renovating existing structures. The acquisition may have been influenced by difficulties Price has encountered in getting approvals for a warehouse in Smithtown, Long Island, which was scheduled to open this summer after three years of planning.
"It's extraordinarily difficult (in the New York area) to get a piece of land the size Price needs to get a unit open," said Kenneth Pearlman, a securities analyst and portfolio manager with Sharevest Capital Management in New York. "This gives them a head start because they don't have to build and go through the planning hoops that can drag these things out for ages," Pearlman said.
Price Co. plans to open eight more Price Clubs, half of them in the East, before Aug. 31, the end of its fiscal year. The chain did $2.7 billion in sales last fiscal year, earning net income of $58.9 million.