General merchandise retailer Sears Holdings Corp. (SHLD) said Thursday it plans to spin off Orchard Supply Hardware Stores Corp. into a separate, publicly-traded company.
Hoffman Estates, Illinois-based Sears said in a filing with the U.S. Securities and Exchange Commission that it believes the business will generate more value as a standalone company. Orchard Supply Hardware operates 89 full-service hardware stores in California.
Sears said that the spin-off would be effected through a pro rata distribution to its shareholders of the Orchard common stock and preferred stock held by the company. Sears shareholders will own 80 percent of Orchard, while the remaining 20 percent stake will be held by Ares Management LLC.
ESL Investments Inc., which currently owns about 61 percent of Sears' common stock, will become Orchard's largest owner. ESL Investments is a hedge fund controlled by Sears Chairman Edward Lampert. The spin-off is subject to final approval by Sears' board of directors.
Orchard is a California specialty retailer primarily focused on the consumer segment of the home improvement market. The business was founded as a farmers' cooperative in California's Santa Clara Valley and opened for business in March 1931 with a single store in San Jose, California.
Orchard was acquired in 1996 by Sears Roebuck & Co., which is now a wholly owned subsidiary of Sears Holdings. Orchard recorded net income of $8.72 million in fiscal year 2010 on revenues of $660.70 million. However, the business has been witnessing a steady decline in sales.
For purposes of calculating a registration fee, Sears valued the Orchard IPO at $82 million. However, the company did not specify a target price for the IPO and also did not announce a date for the spin-off. Shares of the newly listed Orchard will trade on the Nasdaq market under the ticker symbol "OSHS".
SHLD closed Thursday's regular trading session at $71.50, up $0.49 or 0.69 percent on a volume of 0.40 million shares.
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