House of Fabrics to Be Sold to Rival Retailer for $100 Million

House of Fabrics Inc., the Sherman Oaks, Calif., operator of retail fabric stores, said Sunday it had agreed to be acquired by the nation’s largest fabric and craft retailer for about $100 million in cash and debt.

Once a strong fixture of the California retail industry, House of Fabrics said that rival Fabri-Centers of America Inc. of Hudson, Ohio, has offered about $26 million in cash, or $4.25 a share. House of Fabrics stock closed Friday at $3.19 a share on Nasdaq.

Fabri-Centers, which operates 900 stores in 48 states, would also absorb about $70 million of House of Fabric’s existing debt, including a $50-million revolving line of credit.

House of Fabrics currently operates 261 company-owned House of Fabrics, So-Fro Fabrics, Fabricland and Fabric King stores in 27 states, with 90 stores in California.

“We view it as a very positive combination. This gives us a major presence on the West Coast. They’ve got great real estate locations and our cultures are similar,” said Brian Carney, chief financial officer of Fabri-Centers, which operates most of its stores under the names Jo-Ann Fabrics and Cloth World.

“It’s a good fit,” said Donald Richey, who will remain president of House of Fabrics until the acquisition is completed in about two months. “It’s good for the shareholders and for the stores. It will give us the money we need to do the kinds of things we need to be done in the stores. Eventually, we could start growing again.”

House of Fabrics’ board of directors unanimously recommended late Sunday that shareholders accept the deal.

Under the agreement, the House of Fabrics name will cease to exist and all of its stores will be converted to Jo-Ann Fabrics or Cloth World and offer a broader range of products, Carney said.

Consolidations are planned, but it is still unclear how many stores would be closed or how many of House of Fabric’s 5,000 workers would be laid off, he said. House of Fabrics will be operated as a wholly owned subsidiary, he said.

Founded in 1946 in Los Angeles by Charles and David Sofro, sons of junk dealers, House of Fabrics made its name as a mall chain and grew to more than 600 stores. In the 1980s, it began an ill-timed expansion into free-standing “superstores” and a new line of craft products just as more women stopped making their own clothes and low-priced, ready-to-wear clothes became increasingly available.

Heavy debt loads, high costs and sluggish sales, in part due to the struggling California economy, forced House of Fabrics into a Chapter 11 bankruptcy filing in 1994. It emerged in 1996 under a reorganization plan with less debt, fewer stores and a cleaner balance sheet, but the company still hasn’t posted the profit investors had hoped it would.

For the nine months ending in October, the company posted a net loss of $10.8 million, or $2.05 a share.

After reaching its 52-week high of $5.50 a share in January 1997, House of Fabric’s stock dropped to $1.63 a share by November.

Fabri-Centers has the most individual fabric and craft stores in the $11-billion fabric and craft industry, but Wal-Mart Inc. is considered a major competitor in terms of volume. In the decorations and craft market, Michael’s is the largest.

“The specialty retailers like House of Fabrics must consolidate if they want to compete with the mass markets like Wal-Mart in this industry,” said Fredric M. Roberts, investment banker for House of Fabrics. “They’ve spent their lives focusing on each other, but they must join forces to survive.”

Friday, Fabri-Centers stock was down 6 cents in New York Stock Exchange trading to close at $24.38 a share.