Toano, Va.-based Lumber Liquidators has agreed to acquire certain assets of Sequoia Floorings relating to Sequoia’s quality control and assurance, product development and logistics operations in China.
In connection with the agreement, Lumber Liquidators expects to retain certain key Sequoia personnel in Shanghai, China, and assume direct control of sourcing previously managed by Sequoia. The acquisition strengthens Lumber Liquidators’ mill-direct relationships pursuant to its long-term sourcing strategy, and allows for a coordinated and efficient transition to direct servicing of mill relationships by a team of quality and product development experts.
"By entering into this transaction, we will be able to better control product cost and quality through our own international sourcing operations, further strengthen our value proposition and increase our competitive position," said CEO Jeffrey Griffiths. "Additionally, we believe that this acquisition will allow us to expand operating margin, while at the same time provide greater flexibility in our marketing programs to help us attract consumers with aggressive opening price points."
Sequoia, a trading company, had provided product quality and development services on approximately 40% of the company’s 2010 merchandise purchases, primarily those in Asia. As part of the transaction, Lumber Liquidators will be opening a representative office in Shanghai upon approval of its application to the Chinese government, expected to occur in October.
The acquisition agreement includes a cash outlay of approximately $5.0 million plus other consideration, such that the expected allocated purchase price is approximately $8.0 million. The company anticipates acquisition-related expenses of approximately $0.6 million, or $0.01 per diluted share, in the third quarter of 2011. The acquisition is expected to be accretive to the business by the fourth quarter of 2011.