HomeBase To Merge With Builders Square

HomeBase may merge this month with Builders Square to form the nation's third largest home center chain with 250 stores in 25 states and $4 billion in annual sales.

The merger's instigator, Leonard Green & Partners, a Los Angeles, Ca., merchant bank specializing in management buyouts, will hold a majority interest in the combined chain. Shareholders of HomeBase parent Waban Inc. and Builders Square's owner Kmart would have equal stakes ofless than 20Vo each.

The new chain would be headquar- tered at HomeBase's corporate offices in lrvine, Ca., and headed by HomeBase chief executive Allan Sherman.

Kmart would retain liability for $2 billion in lease guarantees, and HomeBase also would retain an undisclosed amount of lease liability.

Regardless of the outcome, Kmart will take a charge of $350 million to $400 million in its current fiscal year to write-down Builders Square.

For years, Kmart has been trying to sell the unprofitable Builders Square chain, its final remaining non-dis- count store division. "[t solves a problem for Kmart-not cheaply, but at least they've finally found a way out of Builders Square," said one analyst.

Waban suspended plans to spin off its BJ's Wholesale Club from HomeBase, saying the merger better increases shareholder value. If the sale goes through, Waban plans to use the proceeds to retire debt, repurchase shares and for other purposes.

The question is whether combining two chains considered underperforrrers will strengthen them orjust create one huge underperformer.

To differentiate them from industry leaders Home Depot and Lowe's, both HomeBase and Builders Square have been stressing home decor, explained Leonard Green partner Jon Sokoloff.

Builders Square stores would be converted to HomeBase's new format, although 53 older, non-Builders Square II units would have to be closed or expanded and thoroughly remodeled.