Rob Lenihan
If the shoe company fits, buy it.
That seemed to be at the forefront of shareholders' minds Wednesday, as investors bet that Payless ShoeSource's(PSS Quote - Cramer on PSS - Stock Picks) $800 million agreement to buy Stride Rite(SRR Quote - Cramer on SRR - Stock Picks) is the right step. Shares of Payless climbed $3.31, or 10%, to $35.21, while shares of Stride Rite jumped $4.76, or 31%, to $20.21. Under the agreement, Payless will pay $20.50 a share for Stride Rite, a 32% premium over the company's closing price Tuesday. The purchase will give Payless, a discount retailer with nearly 4,600 stores, access to Stride Rite brands such as Keds, Saucony and Sperry-TopSider. After the deal's close, Payless plans to change its name to Collective Brands and form a footwear holding company with three separate units: Payless, Stride Rite and Collective Licensing, a brand business that the company acquired in March. While investors applauded the deal, analysts had mixed views on how the Stride Rite purchase will affect Payless and rival footwear sellers. "Stride Rite has struggled over the years, and certainly the children's shoe business isn't what it used to be," says Scott Rothbort, founder of LakeView Asset Management and a contributor to Street Insight. "The question is, can Payless make some lemonade out of these lemons? It's a possibility." Payless CEO Matthew Rubel said in a statement that "this transaction is squarely on strategy and driven by its strong growth potential. Through this acquisition and as indicated by the change in our name, we are creating a leading, innovative global footwear, accessory and lifestyle brand company that is well positioned to grow in both our key domestic and international markets."
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