Hardware Chain Nails Down Northwest Deal -- Executives: Nuts And Bolts Make Eagle, Lowe's Good Fit

To the casual observer, Eagle Hardware's acquisition by home-improvement giant Lowe's might appear to be just one more example of a popular local retailer being gobbled up by an impersonal mega-chain with headquarters somewhere else.

But executives for both Eagle and Lowe's insist this deal, if approved, will be different. Both camps say the move makes good economic sense for shareholders, employees and, most of all, consumers.

"Eagle is a great company with a talented work force and terrific operations," said Lowe's chairman and chief executive officer, Bob Tillman. "The idea will be to offer better in-store (products and services) to our customers every day."

Richard Takata, Eagle's president and CEO, said the merger would offer his company, which has 32 stores in nine Western states, an opportunity to expand into previously untapped markets.

"This is a tremendous opportunity," Takata said, "for Eagle to partner with a nationwide retailer."

Lowe's, headquartered in Wilkesboro, N.C., announced the proposed stock swap with Eagle on Sunday. Valued at $1 billion, the deal is expected to receive approval during the first quarter of 1999.

By now, merger mania in the region's retail sector should come as no big surprise. In February, Seattle grocery-store chain QFC was bought by Portland's Fred Meyer. Then, just last month, Fred Meyer was acquired by Kroger, a chain based in Cincinnati.

In the early 1990s, locally owned Pay'n Save drugstores were sold to Oregon's PayLess Drugs. RiteAid later acquired PayLess.

Retailers have not been the only acquisition targets. Regional banks also have been absorbed into national companies. Seafirst, which will soon become Bank of America, and Puget Sound Bank, which is now Key Bank, are but two examples.

National retail strategists Dick Outcalt and Pat Johnson of Seattle say when acquisitions of this type occur, it's natural to question the viability of the merged company. But each case should be evaluated on the merits, they say, and there are seldom any easy answers.

"We go back and forth between consolidations and smaller operations springing up," said Outcalt and Johnson. "Bigger is not always better. There's always room for a better operator."

In the case of Eagle and Lowe's, a merger had been rumored for months because of the striking similarities between the companies' products and services. Analysts' perceptions that each company would strongly complement each other helped fan speculation.

Brian Peace, a Lowe's spokesman in North Carolina, said the move would give Eagle broader exposure and access to markets the company might not have otherwise ventured into. Peace also predicted that Eagle customers in the Pacific Northwest would see nearly no changes.

"The transaction will be largely transparent to the average consumer," Peace said.

"We have no plans to abandon the Eagle format in the Pacific Northwest. Everything that Eagle's customers expect in their stores, they will continue to see."

Eagle had announced plans earlier this year to open four new stores by the end of 1998, including one at Smokey Point near Everett. That store will open as planned and will feature the Eagle name figured prominently in the store banner. Lowe's will combine the two companies' names at stores in the Pacific Northwest because the Eagle name is so well-known in the region.

"We anticipate growing and expanding the Eagle brand" in the Pacific Northwest, Peace said. "We do not feel that any of those markets are over-stored. We see many opportunities."

Earlier in the year, Lowe's had announced plans to open 100 stores over the next four years, expanding into Western states, including Arizona, California and Nevada. Peace said those plans will not be affected by the merger, and stores in those markets will prominently feature the Lowe's name.

Takata will oversee the transition. If the deal is approved, as expected, Takata would become president and chief operating officer of Lowe's Eagle division and report to Tillman.

Even so, Eagle would retain a high degree of independence and autonomy, especially in its core Pacific Northwest markets. Analysts said this was a key element of the agreement.

Laura Richardson of Pacific Crest Securities called the deal "a good strategic move" for both companies and said she would be very surprised if Lowe's tried to make any major changes to Eagle stores.

"If Lowe's came in and changed Eagle radically, that could have an (adverse) impact" on customer perceptions, Richardson said. But Lowe's executives "respect what Eagle does. And therefore, they're going to leave well enough alone."

John Rogers, an analyst at D.A. Davidson & Co. in Portland, agreed that it's unlikely Lowe's would try to change Eagle's identity, especially in this region.

But Rogers also cautioned that Lowe's would still have to live up to its promises.

"You always have to wait and see what happens," Rogers said. But "the consumer should benefit. Now it will be up to Eagle to keep up the same level of products and services."

Analysts Outcalt and Johnson said customers in the Northwest also should see lower prices and better service as a result of the merger.

"Lowe's is known in the industry as a low-cost provider," Outcalt and Johnson said. "That's basically what Eagle has done as well. They're going to do whatever is in the best interest of the customers."

Robert Marshall Wells' phone message number is 206-464-2412. His e-mail address is: rwells@seattletimes.com