Hardware Giant Lowe's Buys Eagle -- $1 Billion Stock Swap To Propel Acquisition

Eagle Hardware & Garden, the expanding home-improvement warehouse chain based in Renton, will be acquired by Lowe's, the nation's No. 2 home-improvement retailer, in a $1 billion stock swap.

Lowe's, based in North Wilkesboro, N.C., will pay $29 for each Eagle share, a 5.5 percent premium over Friday's closing price of $27.50 a share.

Analysts had been speculating about the acquisition for some time, so the deal didn't come as a surprise. Both boards of directors already have approved the purchase, which is subject to shareholders' approval. The deal is expected to be completed early next year.

Eagle will continue to be headquartered in Renton. But if the merger is approved, Lowe's will add its name to Eagle store signs in a co-marketing strategy that has not been finalized.

"It's a good deal for Eagle, but not a great deal," said George Sutton, a stock analyst with Dain Rauscher in Minneapolis. "Lowe's could have paid more."

But he said Lowe's is an outstanding company, and the two companies will "marry well."

Sutton rated Eagle's customer service at the high end of the industry, while Lowe's is in the middle and Home Depot is at the bottom.

Richard Takata, Eagle president, will oversee the transition. He will remain president and become chief operating officer of Eagle and will report to Bob Tillman, Lowe's chairman and chief executive officer.

"This is a tremendous opportunity for Eagle to partner with a

nationwide retailer that's widely regarded as one of the best employers in the country," Takata said.

Eagle has 32 stores and 6,000 employees.

Access to new cities

Tillman said the acquisition will accelerate Lowe's West Coast expansion and will give it an immediate presence in several key metropolitan markets in Washington, Oregon, Utah, Colorado, Hawaii, Alaska, California, Idaho and Montana, where Eagle operates.

"We feel very positive about our growth plans and expansion plans," Tillman said in a news teleconference today. "Our desire is to do nothing that any of the Eagle people would not see . . . as a win-win."

Lowe's already had announced plans to open 100 stores in the region over the next three to four years. Those plans will proceed, Tillman said.

Most of Lowe's 465 stores are in the southeastern part of the country. None are in the Pacific Northwest.

The company has more than 65,000 employees.

Lowe's currently in second place

Lowe's is second in the home-improvement industry only to Home Depot. Home Depot has about 15 percent of the $160 billion-a-year market for do-it-yourself supplies, while Lowe's has about 6 percent.

Tillman said he anticipated no substantial changes in product offerings, although the new Lowe's-Eagle chain would probably expand its selection of major appliances and private-label mechanic's tools manufactured for the company by Snap-On Tools.

Competition already had been heating up among Eagle, Home Depot and Lowe's as all three moved into the California market.

Eagle, founded by David Heerensperger, opened in 1991. Heerensperger remains Eagle's chairman.

Tillman said Heerensperger will not be involved in day-to-day operations of the new company, but will be available to offer advice to Tillman and other executives. The 62-year-old Heerensperger has stepped back from Eagle's daily operations in recent years and has focused on real-estate acquisitions and other business.

Heerensperger - a colorful, sometimes brash and combative former Spokane businessman and son of a Longview carpenter - started his first hardware store in Spokane at age 24. It was acquired by Pay 'N Pak.

He later moved to the now-defunct Pay 'N Pak chain, which he headed. He left Pay 'N Pak in August 1989, two years after he and an investor group financed by Citicorp's venture-capital department fought off a hostile takeover attempt by Paul Bilzerian, a Florida investor.

Heerensperger had said then he wanted to slow down. But within a week of leaving Pay 'N Pak, he was at a Chicago home-center show picking up ideas. His departure package from Pay 'N Pak prohibited him from hiring away its managers for three years but did not prohibit him from starting a competing business.

He said he had seen the trend toward one-stop shopping and providing more customer service, and decided to build the warehouse-concept stores with $3.5 million of his own money.

He got nearly $20 million more from other investors to get started and took Eagle public in 1992. He first hired Takata, his hand-picked Eagle president, in 1986 while at Pay 'N Pak.

A `pooling of interests

The merger with Lowe's is structured as a tax-free exchange of Lowe's shares for Eagle's shares and will be accounted for as a "pooling of interests."

Eagle had record sales of $274.3 million, up 10 percent, in its third quarter ended Oct. 30. Lowe's sales were up 19 percent to $3 billion in the same period.

Eagle's profits were $10.7 million in the quarter, while Lowe's were $116.4 million.

Information from Bloomberg News is included in this report.


. Partners By The Numbers .

. Eagle Hardware . Stores: 32 in nine Western states . Sales: $1.05 billion over last 12 months . Profits: $35.8 million over last 12 months . Chairman: David Heerensperger . CEO: Richard Takata . Headquarters: Renton .

. Lowe's . Stores: 465 in 26 states, mostly in the Southeast . Sales: $11.7 billion over last 12 months . Profits: $449 million over last 12 months . Chairman, CEO: Bob Tillman . Headquarters: Wilkesboro, . N.C.