Builders Square to Be Combined With Hechinger

Los Angeles-based buyout specialist Leonard Green & Partners will take control of Kmart Corp.’s Builders Square stores and combine them with struggling Hechinger Co. to form the nation’s third-largest home-improvement chain, the companies said Thursday.

The new chain will have more than $4.5 billion in annual sales and 279 stores in 29 states and the District of Columbia, supplanting Payless Cashways Inc. in the No. 3 slot.

The chain will be owned by Leonard Green. The buyout firm will pay $98 million to buy all of Hechinger’s stock, but the companies did not disclose terms of the Builder Square transaction.

Kmart will have the option to purchase a minority interest in the company at an unspecified later date.

Executives with Leonard Green and Troy, Mich.-based Kmart did not immediately return telephone messages seeking comment Thursday.

The combined company will trail only Home Depot Inc., which had $19.5 billion in sales in 1996, and Lowe’s Cos., which had sales of $8.6 billion.

Builders Square had been the fifth-largest chain and Hechinger sixth.

But Hechinger has faltered in the shadow of giant Home Depot, which competes with 80% of its stores. The Largo, Md.-based retailer has posted three consecutive annual losses amid declining sales.

In the first quarter, Hechinger reported that its losses more than doubled to $13.5 million, blaming falling sales on bad weather.

Kmart had hoped to sell its Builders Square chain, based in San Antonio, by the end of last year.

In April, a deal to combine the Builders Square operations with HomeBase stores owner Waban Inc. broke off after both sides agreed to pursue other interests.

That merger would have created the No. 3 home-improvement chain.

Builders Square operates 162 stores, primarily in the Midwest and Southwest, with 1996 sales of about $2.4 billion.

Hechinger operates 117 Hechinger, Home Quarters Warehouse Better Spaces stores, primarily in the Midwest and on the East Coast, with sales of about $2.2 billion.

Kmart shares were unchanged at $10.69 on the New York Stock Exchange.