Hechinger Agrees to Be Sold to L.A. Investor

WASHINGTON —  Hechinger Co. agreed Thursday night to be sold to a California investor, ending the Largo, Md.-based home-improvement chain’s long struggle to find a niche in a market that has been taken over by powerful competitors.

Leonard Green, a Los Angeles investor, will pay $3 a share for Hechinger, or roughly $507 million, including the assumption of its debt. He plans to combine the chain with Builders Square, a troubled San Antonio home-improvement chain owned by Kmart Corp., to create a national retailer with $4.5 billion in sales and 279 stores.

“It was important in making this decision that we look at what was in the best interest of our shareholders and the best interest of all our associates that work here, and this clearly was the best alternative for us,” said John W. Hechinger Jr., company chairman and chief executive, whose grandfather founded the business in 1911.

Once bank financing has been arranged and assuming no regulatory intervention, Builders Square’s headquarters will be moved to Largo. The current management of Hechinger and Builders Square will not be involved with the combined firm. It will be run by Anthony Petrillo, a retail executive who has worked with Green in turning around other troubled retail chains.

The new firm will close some stores--how many is unclear--in markets where Hechinger and Builders Square overlap in the Midwest and the mid-Atlantic. Both retailers are expected to continue operating under their current names.

Hechinger has tried new store formats and new customer service campaigns and has reorganized its corporate structure in an effort to boost sales and profit as the company lost market share to Home Depot Inc. But Hechinger’s fortunes have only worsened this year, with sales declining, losses mounting and its stock worth just a fraction of its all-time high of $27, reached in 1986.

Industry analysts are split on whether the combination of the two chains can compete with Home Depot and Lowe’s Cos., both of which have hundreds more stores than the new company.

Green will own 100% of the combined Hechinger-Builders Square company, although Kmart will have the option to purchase a minority interest in the business at a later date.

Kmart shares were unchanged at $10.69 on the NYSE.