How about this for an odd marriage: A catalog seller of yuppie casualwear and a stodgy, old-school department store chain.
said Monday that it had agreed to acquire
for $1.9 billion in cash. Sears gets a shot at reviving its ailing apparel business, and shareholders of Lands' End -- especially founder and Chairman Gary Comer, who owns over 52% of the company -- get to cash out at a premium in a difficult environment for apparel companies.
But integrating the two companies could be tough, and some observers were worrying that the deal could ultimately tarnish Lands' End's reputation for high-quality preppy duds. Sears plans to roll out Lands' End clothes in Sears' 870 full-line shops nationwide, giving the well-respected brand a bigger stage -- but possibly stretching it as well, some investors say.
"It diminishes the brand," says one hedge fund manager who owns Lands' End stock. "I think Sears gets much more out of it than Lands' End. I could see a backlash against the brand."
Investors didn't seem to mind initially, boosting Lands' End shares 21% in Monday morning trading to just below the $62-a-share deal price. Sears shares dropped fractionally. For their part, executives at stodgy Sears said the right things about preserving the catalog retailer's image.
"We do want to maintain Lands' End's brand and image," said Jefffey Jones, Lands' End's chief operating officer, in a conference call Monday. In the Sears call, Alan Lacy, the chief executive officer, acknowledged Sears' "perception and image issues" regarding apparel; he said Lands' End would correct those problems and become the chain's flagship clothing brand.
Supporters of the deal say Sears already has an upscale client base that shops for high-end appliances and electronics. "But they didn't really have much of an apparel offering for those customers," says Derek Leckow, who covers Lands' End for Barrington Research. "I think they'll be careful how they display the goods in the stores."
Lands' End has been on the block for some time, analysts believe, and Lacy said in the conference call that talks between the two companies began "a while ago." Lands' End said it would be filing documents with the
Securities and Exchange Commission
in the coming days that will give more details on the bidding process.
On the Road
Lands' End will remain in Dodgeville, Wis., under the same management. The deal, which is expected to close in June, is conditioned on two-thirds of Lands' End shares being tendered. The deal seems all but certain to be completed, since shareholders representing 55% of Lands' End's shares have agreed to the buyout.
Still, some people who follow the company weren't ruling out a competing bid from another retail outfit, as the premium Sears agreed to pay didn't appear extravagant. "It was only something like a 20% premium -- not a blow-away like 30%," said one hedge fund manager who was considering buying Lands' End stock on the hope that a higher bid comes. "The market's pricing in a little possibility that
a competing bid could come," this person says, because the stock is trading just shy of the $62 buyout price.
Others said the premium was adequate, given Lands' End's erratic earnings history. The company was once an investor favorite for its rapid growth, but began to stumble in the late 1990s. It got its act together last year, however, and the stock has soared. Prior to the buyout offer, shares were already up about 82% from their 52-week low.
Meanwhile, Sears, based in Hoffman Estates, Ill., has been in the midst of a turnaround that includes redesigning most of its stores. Sales have faltered, but the company has already starting seeing the benefits of cost-cutting measures: The company recently raised first-quarter earnings guidance.