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Orchard Supply Hardware Files for Bankruptcy

According to Reuters, Orchard Supply Hardware (NASDAQ:OSH) filed for chapter 11 bankruptcy but a popular hardware chain offers to purchase the company for $205 million in cash and the assumption of its debts.

You might remember Orchard Supply Hardware. We covered the sudden run-up in the stock and later, covered how it gave back most of it 57 percent gains. It felt a lot like a pump and dump scheme but without sounding like conspiracy theorists, today’s news certainly makes the recent volatility look a little suspect.

In it’s bankruptcy filing, Orchard Supply Hardware said, “The company’s substantial debt due, in part, to significant recapitalization dividends paid to Sears, made it difficult, if not impossible for the company to right itself. The ever present prospect of violating the company’s leverage ratio covenants hampered many of its operational strategies.”

The company generated 2012 revenue of $657 million and listed total liabilities of $480.1 million with total assets of $441 million. Lowe’s (NYSE: LOW) has been designated a stalking horse bidder by the Orchard Street. In a bankruptcy filing, the distressed bidder sometimes designates a first bidder to avoid low-ball offers. Other companies may bid for Orchard Street but the offer will have to be higher than Lowe’s initial offer.

According to Lowe’s, it will acquire not less than 60 or Orchard’s 91 stores. Lowe’s said in a statement, “Strategically, the acquisition will provide us with immediate access to Orchard`s high density, prime locations in attractive markets in California, where Lowe`s is currently underpenetrated, and will enable us to participate more fully in California`s economic recovery.”

While Monday’s news will make investors think that inside information was leaked, there is no proof of that being the case.

In premarket trading, Orchard Supply Hardware is up 42 percent on the news.

Disclosure: At the time of this writing, the author had no position in any of the equities mentioned.

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