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CALIFORNIA / News and Insight on Business in the
Golden State

Lowe's Plans to Buy Eagle for $1 Billion

Retailing: The deal would speed the nation's No. 2 home improvement chain's expansion into the West.

November 24, 1998|From Times Wire Services

Lowe's Cos., the nation's No. 2 retailer of home improvement products, agreed Monday to buy Eagle Hardware & Garden Inc. for $1 billion in stock to speed its expansion in the Western U.S., particularly California.

Eagle operates 32 stores in nine Western states, with estimated sales this year of about $1 billion. Lowe's has 465 stores, mostly in the Southeast, with estimated 1998 sales of more than $12 billion. Lowe's would pay $29 for each of Eagle's 34.5 million fully diluted shares.

Earlier this year, Lowe's unveiled plans to open 100 stores in California, Arizona and Nevada--most of them in Southern California--by 2003 to help it compete against bigger rival Home Depot Inc., which has announced its own plans to open 60 additional stores in the Southland over the next few years.

Eagle, based in Renton, Wash., has stores primarily in Washington and Oregon but has opened one store in California--in Riverside County--and has plans to open others. The proposed merger would accelerate that expansion and give Lowe's immediate presence in several other key Western markets, including Alaska, Colorado and Utah.

"It gets Lowe's into some markets now that they hadn't originally planned, namely Denver and Salt Lake City," said analyst Wayne Hood of Prudential Securities Inc. "There's a lot of opportunity for growth on the West Coast."

Atlanta-based Home Depot, with 673 stores in the U.S., has about 15% of the $160-billion-a-year market for home improvement supplies, while Lowe's is second with about 6%.

The specter of these companies' expansion raised some concern for other rivals, such as Irvine-based HomeBase Inc. Meanwhile, San Jose-based Orchard Supply Hardware, owned by Sears, Roebuck & Co., is also planning to add more stores in Southern California.

Lowe's shares rose $1.69 to close at $41.25 on the New York Stock Exchange. Eagle shares rose 31 cents to close at $27.81 on Nasdaq. The purchase represents a 5.5% premium to Eagle's closing price Friday.

The prototypical Lowe's store has about 115,000 square feet of selling space and looks more like a warehouse. Eagle's stores are more "upscale," averaging about 128,000 square feet, and are laid out more like a discount or department store, said Lowe's Chairman and Chief Executive Robert Tillman in a conference call with reporters.

Lowe's doesn't expect to make major changes to the interior of the Eagle stores, he said.

As Lowe's opens stores in Southern California, it will convert Eagle stores in that area to the Lowe's name, Tillman said. However, it will combine both company names at stores in the Pacific Northwest because the Eagle name is so well-known there, he said.

Analysts said they expect Lowe's to benefit from Eagle's stronger assortment of tools, and plumbing, electrical and lighting products. Lowe's has more strength in major appliances, lumber and building materials. It also has a larger focus on the professional contractor market.

Eagle would also gain from access to Lowe's more advanced systems for managing inventory, Tillman said.

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* MERGER MONDAY: Monday brought a deluge of merger reports. C4

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