Kmart to sell major stakes in 3 divisions

August 17, 1994|By Bloomberg Business News

TROY, Mich. -- Kmart Corp., under pressure for months from investors who want it to focus on its ailing discount stores, said yesterday that it will sell majority stakes in three of its four specialty retail businesses.

Kmart plans initial public offerings of shares in its Borders/Waldenbooks, Sports Authority and OfficeMax chains.

OfficeMax will be the first on the block. Its IPO is expected to be filed within a few weeks, Kmart said after a special board meeting. The company would not say how much it hopes to raise from the stock sale.

Timing for selling the other two divisions will depend on market conditions, the retailer said.

In June, shareholders rejected the company's plan to issue new classes of stock in the specialty units, saying it didn't go far enough. The vote was a major defeat for Kmart Chief Executive Joseph E. Antonini.

Analysts said yesterday's move shows that the Kmart board is committed to focusing on its core discount-store business, after years in which it tried to grow in many directions.

"Between this, the sale of PACE, the sale of Coles Myer -- this will go down as the most dramatic restructuring in retailing history," said analyst Peter Siris of UBS Securities.

Mr. Siris estimated the total value of the three businesses at $3.07 billion.

Kmart did not announce sale plans for its fourth specialty division, Builders Square.

"The Kmart board and management are still reviewing alternatives with respect to Builders Square and initiatives related to the company's core U.S. Kmart division," the company said.

The board decision comes on the heels of yesterday's discouraging second-quarter earnings report, in which Kmart said profit fell 25 percent for the seventh year-to-year drop in a row.

That earnings decline came on weaker-than-expected sales at the company's domestic discount stores. Higher sales were recorded at the OfficeMax office products chain, Borders-Waldenbooks stores and Sports Authority sporting goods stores. Shareholders were not impressed, however, and want Kmart to get rid of these stores and Builders Square so managers can focus on the discount stores.

The plan for special stock classes, rejected in June, would have raised $600 million to $900 million. Management has been searching for an alternative plan since that stunning rebuke.

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