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Big Lots buys Liquidation World PDF Print E-mail
Written by HGO Staff   

BRANTFORD, Ontario (30 May 2011) - U.S. close-out giant Big Lots has entered the Canadian market after agreeing to purchase the troubled Liquidation World in a deal valued at approximately $1.8 million plus satisfying the latter's outstanding debt.

In addition to snapping up all outstanding common shares for six cents apiece, the Columbus, Ohio-based Big Lots would take over Liquidation World's 92 stores in Canada.

"We estimate our initial investment would approximate $36 million, including payment for the acquisition of all outstanding shares, satisfying the debt of Liquidation World, and normalizing the working capital needs of the business," the publicly-held Big Lots said in a statement, adding, "This is the first expansion of our retail operations outside of the United States."

Both parties said they anticipate the transaction will be close on or before July 31, 2011.

Liquidation World noted the deal required the approval of the Alberta courts and two-thirds of the company's shareholders.

However, it also announced that the company's directors, senior officers and certain other shareholders have already entered into support agreements with Big Lots, committing them to voting in favour of the acquisition. These individuals collectively account for 40% of the company's outstanding shares.

At the end of trading yesterday, Liquidation World shares were trading for seven cents on the Toronto Stock Exchange, a penny higher than the 52-week low. Last November it was trading at $1.55.

Image
A rebranded LW - Everybody's Outlet Store in Windsor, Ontario.

In 2009, the Chicago-based Talon Merchant Capital acquired Liquidation World in a deal valued at $7.6 million.

Both Big Lots and Liquidation World are aggressive furniture retailers. For many Liquidation World stores, furniture can comprise as much as 50% of its floor space. In the U.S., Big Lots aggressively promotes furniture and mattresses in it advertising and on its web site.

"Today is an exciting day for Big Lots as we expand beyond our borders and enter the Canadian marketplace," Steve Fishman, Big Lots chairman and chief executive officer said. "We have diligently studied and analyzed a number of opportunities or paths to enter Canada over the last couple of years and believe the acquisition of Liquidation World provides a long-term growth opportunity for our business and our shareholders."

Liquidation World recently reported sales for the second quarter of its current fiscal year, which ended April 3, 2011, fell to $30.0 million, a drop of 21% from the $37.9 million recorded to the comparable. On a year-to-date basis, revenue was $73.4 million, compared with $82.0 million for the first have of 2010.

The company recorded a net loss of $14 million or 47 cents per share, compared to a net loss of $2.9 million or 18 cents per share for the second quarter of fiscal 2010.

The net loss for the year-to-date was $20 million, compared to $2.2 million for the comparable. Gross margins fell from 37.4% in the second quarter of fiscal 2010 to 13.6% this year's.

Liquidation World also announced this is was in breach of certain covenants with the lenders of its asset-backed credit facility, prompting the search for a buyer.

Founded some 25 years ago in Calgary, Liquidation World has been attempting to apply the Big Lots' model to its own stores.

The company's chief executive officer, Seth Marks, is a former Big Lots executive and has been leading an effort to remodel or relocate the store and rebranding them as ‘LW - Everybody's Outlet Store. The company noted that new locations and remodelled stores were generating positive same-store sales, although older units were posting declines.

At of the end of its first fiscal quarter of 2011 (April 30), Big Lots operated 1,405 stores in 48 states. Big Lots said revenue for the period totalled US$1.2 billion with net income of US$52.5 million or 70 cents per diluted share.

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