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Sears Agrees to Buy Western Auto

March 17, 1988|VICTOR F. ZONANA | Times Staff Writer and

Sears, Roebuck & Co., moving boldly beyond its traditional department stores, announced plans on Wednesday to buy Western Auto Supply Co., one of the nation's oldest and best-known auto parts chains, in a deal valued at $402 million.

"You've got whales swallowing whales here," said Dick Weinberg, publisher of the trade publication Aftermarket Business, who noted that Sears is the nation's largest retailer and Western is the biggest independent home and auto merchandise chain.

In its biggest foray into the specialty retailing business, Sears said it would pay $19 a share, or $250 million, for Western Auto stock. In addition, Sears said it would assume the company's debt of about $152 million.

Aggressive Expansion

The retailer said owners of 52.3% of Western's stock have already agreed to sell their stock to Sears and the balance will be sought in a tender offer. Western Auto stock jumped sharply in over-the-counter trading Wednesday, closing at $18.50 a share, up $6. Sears, traded on the New York Stock Exchange, closed at $37.875, up 12.5 cents.

The transaction would unite two giants in the $70-billion automobile aftermarket business. Sears' annual sales of automotive products and services are nearly $2 billion, while Western's sales totaled $930.8 million last year.

But Western's net income has been depressed in recent years as a result of high interest expenses and an aggressive expansion and store remodeling program. The high interest expenses stem from the 1985 debt-financed buyout of the company from Beneficial Corp. by a group that included Wesray Capital and Western's management. Western posted net income of $10.5 million last year.

Western, which went public in January, 1987, at $13 a share, has 6,600 employees and operates 278 company-owned retail stores in 60 markets. It also sells products wholesale to 1,570 independently owned stores nationwide.

While the Kansas City-based company, which was founded in 1909, was a pioneer in the California auto parts market in the 1920s and 1930s, it currently has little presence on the West Coast. Several years ago, Western sought to bolster its position in California by offering to buy Oakland-based Grand Auto, but a deal never materialized. Grand was later purchased by Paccar.

Indeed, there has been great flux in the auto parts and service business in recent years. In 1986, Schuck's Auto, based in Phoenix, bought Lucky Stores' 378-store automotive division. More recently, Southland Corp agreed to sell its Chief Auto Parts unit to a group that includes Chief's management and Shearson Lehman Hutton.

For Chicago-based Sears, which has been struggling to revitalize its merchandising arm, the Western purchase offers economies of scale and, potentially, a new distribution channel for its popular Diehard batteries and RoadHandler tires. The chain, however, will continue to operate under the Western name and under the present management headed by John T. Lundegard, chairman and chief executive.

Edward A. Brennan, chairman and chief executive of Sears, called Western "an ideal complement" to the Sears merchandise group. Western also owns two middle-sized tire store chains, a mobile radio maker called Midland International and Eva Gabor International Ltd., a wig supplier.

Sears' recent push into specialty retailing includes its December, 1987, purchase of Eye Care Centers of America for $53 million and its January purchase of Pinstripes Petites, a women's clothing chain, for an undisclosed sum. Besides the Sears department stores, Sears also operates 51 business systems stores and 83 paint and hardware stores under the Sears name.

BIGGEST AUTO PARTS RETAILERS These are the top 15 companies that primarily sell auto parts; at least 50% of sales are retail.

Name State Stores Northern Automotive (including Checker, Kragen, Schuck's, U-Save, Auto Works, Crown) Arizona 820 Chief Auto Parts Texas 470 Autozone (including Auto Shack) Tennessee 400 Western Auto Missouri 278 Nationwise (including Guarantee) Ohio 260 Trak Maryland 250 Otasco Oklahoma 220 Pep Boys Pennsylvania 210 Whitlock (including Rose, National and Giant) Illinois 160 Paccar (including Grand and Al's Auto Supply) Washington 140 Advance Auto Virginia 130 Champion Minnesota 125 Super Shops California 100 O'Reilly Automotive Missouri 87 Aid Auto New York 82

Source: Automotive Marketing; Western Auto magazine

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