KMART, WABAN IN TALKS TO JOIN BUILDERS SQUARE AND HOMEBASE
NEW YORK — Kmart Corp. has a deal on the table to combine its Builders Square unit with Waban Inc.’s HomeBase business and will take a $350 million to $400 million after-tax charge for 1996.
The combination would create a $4 billion home improvement giant and what Kmart called the world’s largest home improvement company, with 250 stores in 25 states.
The companies, along with Leonard Green & Partners LP, disclosed Monday that if the deal is completed, Leonard Green would hold the majority interest, and Kmart and Waban would hold minority interests.
“We are in the preliminary stages of this transaction,” said Marvin P. Rich, Kmart’s executive vice president of strategic planning, finance and administration, in a statement.
“All parties are interested in the potential opportunity that could come from combining these similar home improvement operations.”
Kmart said the transaction is part of its plan to dispose of Builders Square. Builders Square would be reclassified as a discontinued operation in yearend financial statements and record a net loss of $350 million to $400 million from discontinued operations.
A Kmart spokesman said Kmart will take the loss for discontinued operations even if the deal does not go through.
In the year ended Jan. 31, 1996, Kmart lost $100 million from continuing retail operations. After special items, Kmart’s year-earlier net loss came to $571 million.
Builders Square operates 168 stores in the Midwest, with 1996 revenues expected to be more than $2.5 billion.
Herbert J. Zarkin, Waban’s president and chief executive officer, said in the statement, “This transaction has the potential to provide Waban and its shareholders greater value than our previously announced plan to separate our BJ’s wholesale club and HomeBase divisions through a tax-free spinoff of BJ’s.” Therefore, he said the company has suspended activities related to the spinoff of BJ’s.
“Should a sale of HomeBase be concluded as a result of these discussions, we would expect to use the proceeds to retire corporate debt and for general corporate purposes, including the repurchase of common stock,” Zarkin said.
HomeBase operates 84 home improvement stores in 10 western states.
Leonard Green & Partners LP is a Los Angeles-based private merchant banking firm specializing in management buyouts.
Kmart stock closed up 1/8 to 11 1/4 on the New York Stock Exchange Monday.