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Michael Knell

Big Lots to buy Canadian chain

BRANTFORD, Ontario — U.S. closeout giant Big Lots will enter the Canadian market after agreeing to purchase the troubled Liquidation World in a deal valued at about C$1.8 million, in addition to the assumption of debt.

Columbus, Ohio-based Big Lots is snapping up Liquidation World's common stock at 6 cents per share and will take over its 92 stores in Canada.

"We estimate our initial investment would approximate C$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," publicly held Big Lots said in a statement.

The move is Big Lots' first expansion of its retail operations outside the United States.

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

Liquidation World said the deal requires the approval of the Alberta courts and holders of two-thirds of the company's shares. It added that the company's directors, senior officers and certain other shareholders - who collectively hold 40% of the shares - have already agreed to vote in favor of the acquisition.
When the acquisition announcement was made, Liquidation World shares were trading for 7 cents on the Toronto Stock Exchange. Last November they were trading at $1.55.

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

Both Big Lots and Liquidation World are aggressive furniture retailers. In many Liquidation World stores, furniture can take up as much as 50% of the floor space. Big Lots aggressively promotes furniture and mattresses in its advertising and on its website.

Last year, Big Lots ranked No. 15 on Furniture/Today's list of the Top 25 U.S. Furniture Retailers based on its fiscal 2009 estimated furniture, bedding and decorative accessories sales of $716.8 million.

"Today is an exciting day for Big Lots as we expand beyond our borders and enter the Canadian marketplace," said Steve Fishman, Big Lots chairman and CEO. "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 that its sales in its fiscal second quarter, ended April 3, were down 21% from a year earlier to C$30 million. For the year to date, sales of C$73.4 million were down about 10% from C$82 million in the first half of 2010.

The company recorded a net loss of C$14 million or 47 cents per share, compared with a net loss of C$2.9 million or 18 cents per share a year earlier. For the first half, the loss was C$20 million, compared with C$2.2 million for the first half of 2010.

Gross margins fell from 37.4% in the second quarter of fiscal 2010 to 13.6% this year.

Liquidation World also said it was in breach of certain loan covenants, prompting the search for a buyer.

Founded some 25 years ago in Calgary, Liquidation World has modeled its stores after Big Lots. The company's CEO, Seth Marks, is a former Big Lots executive and has been leading an effort to remodel or relocate the stores and rebranding them as "LW - Everybody's Outlet Store."

The company said its new locations and remodeled stores were generating positive same-store sales, although older units were posting declines. As of April 30, the end of its first fiscal quarter, Big Lots operated 1,405 stores in 48 states.

It had revenue of $1.2 billion and net income of $52.5 million or 70 cents per share in the first quarter.

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