Hechinger has new owner Green & Partners now in charge, but old name remains

Home improvement

September 26, 1997|By Liz Bowie | Liz Bowie,SUN STAFF

The day Home Depot opened its first store in the Baltimore market, on June 20, 1991, it marked the occasion by sending the closest Hechinger store a bouquet of black roses.

The gift was reportedly the work of an overzealous Home Depot employee rather than a nasty corporate gesture, but it effectively marked the beginning of a retail war over hammers and nails in Maryland.

Hechinger's top executives signed the surrender papers yesterday, selling their 86-year-old business to Leonard Green & Partners LP, a private investment firm that believes it can lead the charge to bring back the 117-store chain that customers loved so much in the 1980s.

Shareholders of the Largo-based Hechinger voted yesterday to allow the sale to Los Angeles-based Leonard Green & Partners to go through at a 9 a.m. meeting attended by a handful of employees and shareholders. The meeting was described as "quiet" by a top executive of the company. Green then deposited $100.2 million in a bank to pay Hechinger shareholders $2.375 per share.

Green will merge Hechinger with Builders Square, another ailing home improvement chain it bought yesterday from Kmart Corp. The new company will be the nation's third largest home improvement chain with 279 stores in the Midwest, South and along the East Coast. Only Home Depot and Lowe's Cos. have more stores.

John Hechinger Jr., the third generation of Hechinger men to run the stores, walked out yesterday after having tried various approaches to turn the company around.

In his place today is Anthony Petrillo, an executive who has worked for Green before and helped turn around two troubled drugstore chains. Green merged Thrifty Drug and another Kmart subsidiary, the PayLess drugstore chain, created a competitive retailer and sold the company to Rite Aid Corp. for $2.5 billion last year.

When the Hechinger stores open for business as usual today, there will be no obvious changes. Only the three top executives: Chairman and Chief Executive Officer John Hechinger, President and Chief Operating Officer Kenneth J. Cort and Executive Vice President and Chief Financial Officer W. Clark McClelland, their secretaries and a couple others will be gone.

The headquarters of the combined company will remain in Largo, and the stores will keep the names they had yesterday.

McClelland said employees have expressed sadness that the Hechinger family, which controlled the company until yesterday, will be leaving. But, he added, they seem to be looking forward.

"I feel real good for the people who are left," McClelland said. The merger with Builders Square is a good one and gives the company a chance to rebound, he said. "I think the team is a good one."

Trading on the stock continued through 3: 54 p.m. yesterday -- it closed at $2.219, unchanged. Standard & Poor's Corp. did announce, however, that it would replace Hechinger Co. in the S&P Small Cap 600 index with Consolidated Products Inc. of Indianapolis.

With 162 stores primarily in the Midwest, Builders Square had sales of $2.55 billion last year. Hechinger's stores are primarily along the East Coast and as far west as Kansas City, Kan.

Most recently, Hechinger had been showing a decline in same-store sales and revenue that disappointed even the buyers.

The company said it lost 96 cents a share, or $40.6 million, in the second quarter, which ended Aug. 2, compared with earnings of 28 cents a share, or $12.2 million, in the corresponding period in 1996. Same-store sales, considered a key indicator of a retailer's financial health, dropped 10.3 percent.

As a result, Hechinger had to drop its sale price by 21 percent -- from $126.6 million, or $3 a share.

In exchange, Green gave the company assurances that the sale would go through by removing a clause in their agreement that allowed Green room to pull out of the deal.

Founded in 1911 by Sidney Hechinger, the chain had 128 stores in 24 states by 1989, earning almost $50 million that year. It had become prosperous and loved as the hardware store that was also "the world's most unusual lumber yard."

But customer loyalties proved fickle after Home Depot entered the market with more selections and cheaper prices. By last winter, the chain was struggling with debt and more than a year of declining same-store sales.

Even as the company attempted to fight back, by combining its Hechinger and Home Quarter divisions and opening a new prototype store, called Better Spaces, in Albany, N.Y., the executives had begun to consider a sale.

By early yesterday, McClelland had pretty much cleaned out his office.

"I have been getting up and coming here for a long time," he said, "and it will be a hard habit to break."

Pub Date: 9/26/97

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