Hines Looks to Shed Sun Gro Peat Moss Unit

Nursery operator Hines Horticulture Inc., struggling with debts accumulated during a two-year buying spree, said Monday it may sell its Sun Gro peat moss unit, which accounts for nearly 30% of the company’s sales.

The Irvine company said it has hired investment banker Credit Suisse First Boston to explore a possible sale and other options for the unit, the company’s poorest performer as well as the most distant from its core business.

Hines, the nation’s largest plant wholesaler, is one of several large nursery operators that has been bogged down by debts in a consolidation wave. Color Spot Nurseries Inc., the second-largest operator, closed two nurseries in 1999 after a string of big purchases forced a recapitalization.

The company would use proceeds from a Sun Gro sale to pay down its debt, which stood at nearly $289 million at the end of last year, up 47% from 1999, Chief Executive Stephen P. Thigpen said.

Indeed, though the company’s acquisitions and the blossoming garden industry helped propel Hines’ sales last year--a 41% surge to $423 million--growing interest payments eroded the bottom line. Profit fell more than 19% to $12.4 million as interest expenses doubled.

“We are clearly trying to . . . strengthen our balance sheet, and selling [Sun Gro] is one of several different strategies we’re looking at,” Thigpen said.

The company’s stock was unchanged Monday, closing at $3.72 a share in Nasdaq trading. Shares have lost more than 40% of their value in the last year.

In the last two years, the company spent about $185 million to snap up five companies, according to regulatory filings. Last summer, Hines had to restructure an agreement with its lenders to remain in compliance with loan covenants.

Hines, which employs 5,525 people, acquired Sun Gro in 1993 for $48.9 million. Sun Gro’s sales dropped 7.5% in the second quarter as some customers scaled back purchases to keep inventories lean, Thigpen said. Bad weather in Florida and the Northeast also hurt sales. A major fire at a Canadian manufacturing and processing plant also prevented Sun Gro executives from focusing on drumming up new business, he said.

Thigpen also said Sun Gro is “not quite aligned” with Hines’ two other divisions, which grow and sell plants. Sun Gro, which employs 825 workers, including 200 seasonal employees, sells peat moss and related products such as bark-based growing mixes. The unit logged sales of $122 million last year.

Hines, which was founded in 1920, has 15 nurseries across the U.S., including a 458-acre tract in Irvine.