NEW YORK (CNNfn) - Discount retailer Ames Department Stores Inc. agreed Thursday to buy competitor Hills Stores Co. for $330 million, including debt.
Under terms of the deal, Ames, the largest discount retailer in the Northeast, will make a tender offer for all 11.2 million outstanding common shares of Hills Stores at $1.50 each.
Ames also will offer $550, including accrued interest, per $1,000 principal amount of Hills' 12 percent senior notes, due 2003..
The merger will increase the number of Ames stores by about 50 percent and create the nation's fourth-largest discount retailer.
The combined company will have sales of more than $4 billion.
"The acquisition of Hills presents an attractive opportunity for Ames, provided that we can complete the transaction at the price and on the terms to which we have agreed," Ames Chief Executive Officer Joseph R. Ettore said.
Ames said the transaction will strengthen its position in the Northeast and Mid-Atlantic and allow the company to expand into new Midwest markets.
"Hills employees have worked very hard over the years," said Chaim Y. Edelstein, chairman and chief executive of Hills. "While it is difficult to sell something that our people have strived so diligently to support, our board has determined that the Ames transaction is in the best interest of our securities holders and customers. When the time comes, I know our management and our people will do all they can to ensure a smooth transition."
The transaction is contingent on, among other things, the tender of at least 60 percent of Hills' combined common and preferred shares.
The tender offers are expected to begin on or before Nov. 18.
Ames plans to spend $170 million over nine months to remodel and convert the Hills stores to Ames stores.
Hills operates 155 stores under the name Hills Department Stores in 12 Northeastern, Midwestern and Mid-Atlantic states.
Ames operates 301 stores in 14 Northeastern, Mid-Atlantic and Midwestern states, plus the District of Columbia, with annual net sales of $2.2 billion.
Shares of Ames (AMES) finished down 1/8 Wednesday at 20-9/16 on the Nasdaq.
Hills Stores shares (HDS) were up 1/16 at 1-5/16 on the Big Board.