DATE: Friday, June 20, 1997                 TAG: 9706200631

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: STAFF AND WIRE REPORTS 

                                            LENGTH:   65 lines

L.A INVESTOR CONSIDERS BUYING HECHINGER A MERGER WITH BUILDERS SQUARE MAY BE ANNOUNCED.

A Los Angeles investor may buy the struggling Hechinger Co. and combine it with another national home improvement chain, a newspaper reported Thursday.

Hechinger is considering a takeover bid from Leonard Green, who wants to merge the Largo, Md.-based company with Builders Square Inc., several Hechinger store managers told The Washington Post.

Hechinger officials have reportedly not yet agreed to a sale, but several store managers said executives have told them that if an agreement is reached, it will be announced in six to 10 days.

If the deal is finalized, Hechinger headquarters would stay open and employees would keep their jobs, managers reportedly said.

In Hampton Roads, Builders Square has one store, in Virginia Beach's Pembroke area. Hechinger has five HQ-Home Quarters Warehouses in Hampton Roads.

Hechinger's chief financial officer, W. Clark McClelland, declined to comment Thursday on the newspaper's report. Green did not return a telephone call to his office.

Faced with rising debt, declining sales and tough competition, Hechinger announced Tuesday it was considering a sale of its 117 stores to an unidentified buyer for $3 per share or $127 million for all the company's stock.

Some analysts said they were surprised the Hechingers, who hold controlling interest in the company, would consider the $3-a-share offer, which would not allow them to recoup the value of their holdings.

Green is reportedly a wealthy and savvy deal maker who combines companies within an industry to form strategic alliances, analysts said.

In 1994, he reportedly purchased PayLess Drug Stores from Kmart Corp. for $1.2 billion and combined it with Thrifty Corp., a drug store chain he bought for $500 million in 1992. Green sold the company entity to Rite Aid last year for $2.4 billion.

At least one analyst questioned why Green would want to combine two home improvement chains with similar competitive problems.

``The idea of a Builders Square-Hechinger combo is very difficult for me to understand,'' said Kenneth M. Gassman, a retail analyst with Davenport & Co.

Other analysts, however, said the combination could give both chains added buying power and efficiencies necessary to compete with Home Depot Inc., and Lowe's Cos. Together the two chains would have nearly $5 billion in annual sales and 268 stores from Maine to Oregon.

``There's a chance it could work, but they're still going to be pretty far back of Home Depot'' in some areas,'' said Wayne Stefurak, an analyst with Standard & Poor's Corp. in New York.

Despite its troubles, Hechinger's HQ chain, founded by entrepreneurs in Virginia Beach about 13 years ago, still has a strong presence in Hampton Roads.

But HQ has faced increasing competition from giants Lowe's and Home Depot. Two years ago, North Wilkesboro, N.C.-based Lowe's opened two big warehouses in Hampton Roads.

Meantime, Atlanta-based Home Depot, the largest home-improvement retailer in the nation, plans to enter Hampton Roads as early as mid- to late-1998.

Hechinger has tried new store formats and consolidated its two operating divisions in an effort to become profitable again, but sales have declined for three years and it has lost money for the last two years.

For example, Hechinger plans to test a new idea in Chesapeake that focuses on commercial businesses instead of typical do-it-yourselfers. The first ``HQ Commercial Business Center'' is scheduled to open in the city's Greenbrier community on June 30.

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