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Tractor Supply Wins FTC Approval to Acquire Smaller Rival

Tractor Supply Company has officially received clearance from the Federal Trade Commission (FTC) to acquire Orscheln Farm and Home for $320 million, almost two years after initially scooping up its ranch rival.

But under a consent order from the FTC, it will do so without the full deck of stores that were originally part of the deal.

Once expected to acquire and keep Orscheln’s then-fleet of 167 stores across 11 states, Tractor Supply will now gain the remaining 166 stores before divesting 85 to two smaller, Midwestern farm and garden retailers. After the all-cash deal closed on Wednesday, Tractor Supply had an estimated 2,100 locations.

Tractor Supply will retain 81 stores, while selling 73 locations to Iowa-based Bomgaars Supply and offloading 12 to Missouri-based Buchheits Enterprises. Proceeds of the store divestitures will total approximately $72 million.

Over the next 15 months, the acquired stores will be remodeled to the Tractor Supply brand.

In addition, Tractor Supply has agreed to sell the Orscheln Farm and Home corporate headquarters and distribution center to Bomgaars for approximately $10 million within 15 months after the transaction closes.

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The net purchase price of the stores Tractor Supply acquired and retained is approximately $238 million before working capital adjustments. The acquisition is anticipated to generate an estimated future tax benefit of approximately $20 million.

Known largely for selling farm supplies, home improvement tools and products for lawn and garden maintenance, Tractor Supply has broadened its apparel and softgoods offerings, particularly in workwear, expanding its partnership with Carhartt to launch shop-in-shops in more than 100 stores. The Brentwood, Tenn.-based retailer carries apparel under its own private TSC label, and also offers apparel across brands including the Timberland Pro Series, Wrangler, Lee, Dickies, Ariat, Ridgecut Toughwear, Berne Workwear and Blue Mountain. Orscheln carries a similar selection of apparel and footwear with brands including Woolrich, thermals maker Indera Mills, Berne, Irish Setter and Rocky Brands-owned Georgia Boot.

“Today is an important day for Tractor Supply as this acquisition expands our ability to better serve our customers in the Midwest,” said Hal Lawton, president and CEO, Tractor Supply in a statement. “We are committed to providing customers in the region with an elevated product assortment, a meaningful loyalty offering, an enhanced digital shopping experience and so much more that Tractor Supply is able to offer.”

While “the FTC took longer than we anticipated, the outcome is in line with our expectations,” Lawton added.

The February 2021 deal was initially valued at $297 million, and remained under review by the FTC in the subsequent 20 months. The deal had been held up for so long that Arkansas Attorney General Leslie Rutledge co-led a seven-state letter to the FTC in May urging the merger’s swift approval. The letter argued that the merger would support the rural areas that the two companies serve.

As part of the FTC’s consent order, Tractor Supply must aid Bomgaars and Buchheit as they convert the stores and transition Orscheln’s Missouri distribution center to Bomgaars.

In addition to confidentiality provisions typically found in consent agreements, the order explicitly requires Tractor Supply to physical separate the teams supporting its retained stores, the stores being divested to Bomgaars and the stores being divested to Buchheit. The order also mandates technical separation of the data used by each team.

Tractor Supply also must obtain prior approval from the FTC before acquiring any other farm stores or any property that operated as a farm store within six months prior to the date of the proposed acquisition within 60 miles around each Orscheln store being divested.

The retailer also must appoint a compliance officer, provide at least weekly transition updates to an FTC-appointed monitor and provide monthly verified compliance reports to the Commission.

The consent agreement also requires that for three years, Bomgaars and Buchheit must obtain prior FTC approval before selling any of the Orscheln stores they acquired. After the initial three years, the retailers must get prior approval before selling any acquired store to a person that operates a farm store within a 60-mile radius of the store to be sold.

After the closing, Tractor Supply is on track to achieve annual revenues surpassing $14 billion, and have a workforce of 50,000 employees. And with the 81 Orscheln stores in tow, Tractor Supply is raising its outlook for store growth opportunities to 2,800 locations, an increase of 100 stores.

The revenue from the acquisition is anticipated to add about $75 million to Tractor Supply’s net sales for the fourth quarter and fiscal 2022. Given the transaction expenses and early implementation costs to be recorded in the fourth quarter, the deal’s impact is expected to be “relatively neutral” to operating income in the quarter and for the year.

For fiscal 2023, the revenue from the acquisition is anticipated to add at least $300 million to Tractor Supply’s net sales and be accretive by at least 10 cents to diluted earnings per share (EPS). This considers anticipated integration expenses that will partially offset accretion in year one of the acquisition.

The FTC’s approval came on the final day the regulatory body could block the purchase under an antitrust review.

The outdoor and farm lifestyle sector saw additional disruption last year when Stock + Field, which carried Carhartt, Wrangler, Dickies and Wolverine, went out of business and liquidated all 25 stores.