Dive Brief:
- True Value last week announced a proposed deal with private equity firm Acon Investments that would change the structure of the co-op and allow its retailers to sell their equity in the business, according to a press release.
- Currently owned 100% by its independent retailers, Acon under the deal would buy 70% of the stock in the company — leaving the retailers with 30% — for $136 million as well as all of the retailers' outstanding promissory notes for $72 million. Acon would also pay True Value's owner-retailers a $20.6 million dividend as part of the transaction. True Value CEO John Hartmann said in an interview that the buyout would not leave any additional debt on the company's books.
- The deal would leave retailers with one vote on the company's board. Hartmann would hold a vote as well, and Acon would control three votes, Hartmann said. True Value's board voted unanimously to approve the deal, Hartmann said. It now goes to True Value's co-op owners, who will vote on April 12. The board will then hold a special shareholder meeting on April 13. If approved, Hartmann said he expects the deal to close around April 18.
Dive Insight:
If the retailers approve it, the Acon deal would end True Value's days as a co-op. Retailers would lose majority control over the hardware seller, in return for being able to "unlock" their equity, in Hartmann's word.
The CEO said the pursuit of a deal followed questions from retailers about freeing up their equity and the ultimate evolution of True Value.
Hartmann said that retailers could use the proceeds from the buyout to remodel their stores and invest in merchandising and other improvements. They could also pocket it, if they chose. There are no strings attached to the equity sale, according to Hartmann.
The chief executive, who said he plans to stay on as CEO after the deal, has been participating in calls to all of the company's 700 shareholders and has already talked to some that have capital plans for their stores, he said. Asked if retailers might use the buyout as an opportunity to retire, Hartmann said, "Will this particular transaction trigger anything unusual? I don't think so."
Along with a buyout of company stock and notes, he said that Acon brings "deep expertise" in wholesale, retail and manufacturing — all important pieces of True Value's business.
The hardware co-op has reportedly been exploring a possible transaction since last summer. In July, some media reported that fellow hardware retail co-op Ace Hardware might be interested. Ace President and CEO John Venhuizen told the Chicago Tribune in an email: "At this point, we have received no contact to participate in that auction process. If contacted, we would have interest in exploring it."
True Value operates in a category that has been riding a continually improving housing market and remains relatively insulated from e-commerce's explosive push into retail. But that doesn't mean it doesn't face competition. Lowe's, Menards, Home Depot and Ace have all been fighting for their piece of the pie.
In November, True Value reported that its retail comparable store sales were up 3.3% in the third quarter, and that total sales were roughly flat at $364.4 million.
