Hechinger merger decision believed near Some analysts predict Green buyout, union with Builders Square; Retailing


Hechinger Co. has been silent since it announced three weeks ago today that it is negotiating the sale of the company for $3 a share, but analysts expect the company can't remain mum much longer.

Failure to say something soon, they said, will hurt Hechinger even more by lowering employee morale and making customers hesitant and vendors anxious.

"How long do you string people on?" said Don Longo, editor of the National Home Center News, an industry trade publication. Store managers and employees can't feel very good about their jobs, he said.

Some analysts said they believe an outcome -- whether it be a merger or an end to negotiations -- is likely to come in a matter of days and nearly certainly within the next couple of weeks.

"I wouldn't think they could go a few more weeks," said Sheldon Grodsky of Grodsky Associates, a South Orange, N.J.-based securities firm and a Hechinger stockholder. "It has already been a long time in between announcements."

The company is controlled by the Hechinger family, and the negotiations have been kept secret, so analysts and observers said they are just reading tea leaves when commenting on what may happen. Company officials have not returned phone calls seeking comment.

Hechinger's Class A shares ended trading yesterday at $2.125, unchanged from Thursday's close. The shares closed at a 1997 high of $2.375 on June 16, a day before Hechinger announced its merger talks.

But the most widely voiced rumor is that leveraged buyout investor Leonard Green & Partners, of Los Angeles, will buy Hechinger and merge it with Builders Square, a subsidiary of Kmart Corp.

Kmart has already written off Builders Square and has been trying to negotiate a sale for months. Green sought to merge Builders Square with Waban Inc.'s HomeBase stores this spring but the negotiations failed. Some analysts have speculated that Green was attempting to negotiate a three-way merger among Hechinger, Builders Square and HomeBase.

The negotiations may seem slow in part because Hechinger was asked on June 17 by Nasdaq officials to disclose the talks with a suitor, far before the company would have liked to have done so. Hechinger stock ran up and trading was halted until an announcement was made.

"If a deal was to fall through, it would have fallen through earlier," said Andrew Lipman, a director at Schroder Wertheim & Co., a New York investment bank. "It is probably a complicated transaction and it is taking longer to structure than people thought."

But other sticking points may have to do with the value and viability of the companies Green may be trying to merge.

"If Hechinger were a sound, profitable company the deal would have been done," said Kenneth Gassman, an analyst with Richmond, Va.-based Davenport & Co.

Pub Date: 7/08/97

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