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Wed, May 15, 2002 - Page 21 News List

Sears to buy Lands' End

BLOOMBERG , HOFFMAN ESTATES, ILLINOIS

Sears, Roebuck & Co agreed to buy Lands' End Inc for US$1.9 billion, gaining a catalog and Internet retailer known for polo shirts, khakis and deck shoes as the largest US department-store chain tries to stem a 15-month decline in clothing sales.

The US$62-a-share offer is a 22 percent premium to Lands' End's closing price Friday. Sears will issue about US$1.5 billion in debt to fund the acquisition, Chief Executive Alan Lacy said in an interview. The transaction may reduce profit this year and next, and raise it in 2004, Sears said.

Sears will start selling Lands' End apparel in some of its 870 department stores this fall to capture more upscale shoppers.

Lacy has been remodeling stores and developing private brands in an attempt to persuade customers who shop for appliances and electronics at Sears to give clothing a try, analysts said.

"Sears has shown no expertise in apparel," said David Abella of Rochdale Investment Management Inc, which holds 92,377 Sears shares in about US$1 billion in assets. Rochdale sold Lands' End this year. "My concern for Sears is that they're paying a lot for it, but you have to pay for a top brand."

Shares of Illinois-based Sears rose US$0.19 to US$52. They have gained 37 percent the past year. Lands' End surged US$10.71, or 21 percent, to US$61.73.

Lands' End also will boost Sears's sales on the Web, where it doesn't sell apparel, and increase its ability to process orders for catalog and Internet customers. The Sears Customer Direct unit generates about US$500 million in sales, Lacy said.

Lands' End Chairman and founder Gary Comer owned about 15.6 million shares as of March and will get more than US$970 million based on the US$62-a-share price. Comer, a weekend sailor, left advertising 40 years ago to start a mail-order nautical-supply business that later added clothing. By last year, Lands' End's sales reached US$1.57 billion.

Sears's long-term debt rating was lowered by Moody's Investors Service after the announcement. Sears's rating was cut one notch to "Baa1" from "A3" because of the increased operational risk the company is undertaking with the purchase, Moody's said in a statement. Moody's couldn't immediately be reached for comment.

Lacy's expansion on line comes as one of Sears's biggest rivals, Federated Department Stores Inc, pulls back. Federated has stopped mailing Fingerhut catalogs and has fired about half of the unit's 6,000 employees as it closes the division. Federated struggled to stem losses at Fingerhut, which served a lower-income customer than those at the company's Macy's and other department stores, analysts said.

"Federated took on more than they bargained for" when they bought Fingerhut, Abella said. "If they had bought Lands' End and put it in their stores, maybe they'd have done well."

Sears's purchase of Lands' End also comes almost a decade after Lacy's predecessor Arthur Martinez eliminated the company's Big Book catalog, and fired thousands of workers, to slash costs.

The telephone-size catalog offered the full range of products that were available at Sears stores, Sears spokeswoman Peggy Palter said.

"It was very expensive to offer everything to everyone," she said. Specialized catalogs work better because they can be sent to a smaller group of customers with an interest in those products, she said.

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