In connection with the initial investment, Orchard Supply Hardware is also expected to issue approximately $405 million in debt.

"We are pleased that the agreement with Ares will not only provide Orchard Supply with the capital to pursue its growth strategy, but also will allow Sears Holdings to focus more of its management attention and capital on the opportunities in our core business," said William C. Crowley, evp, cfo and chief administrative officer of Sears Holdings, in a statement. "We believe this transaction provides us with an excellent opportunity to create shareholder value while allowing us to participate in the improving business performance at Orchard Supply — performance which we believe will be further enhanced by the involvement of the Ares team."

Sears Holdings also said it it expects its subsidiary Sears, Roebuck and Co. to receive a dividend from Orchard of approximately $450 million.

Assuming consummation of the initial $58.7 million investment, Sears Holdings will retain an 80.1% equity interest in Orchard Supply Hardware which would be reduced to approximately 49.9% should the option be exercised in the next 3 years. The transaction is expected to close in the fourth quarter of this year, subject to regulatory approval, completion of Orchard Supply Hardware's debt arrangements and customary closing conditions.

Orchard Supply Hardware is a chain of 84 hardware and garden retail stores located throughout California. Orchard Supply started in 1931 as a farmers' cooperative in Santa Clara Valley offering supplies to local growers.

Companies referred to in story:

Stock %Chg Industry Mkt Cap Sears Holdings $103.24 +1.02% Department & Discount $13.7B Quote data as of: 03/31/2008 12:08 PM