Lands' End filling a big order: itself to Sears for $1.9 billion

Acquirer is seeking to stitch up the hole in its apparel sales


Sears, Roebuck and Co., the nation's largest department store company, said yesterday that it had agreed to buy Lands' End Inc., the biggest specialty catalog and Internet retailer, for $1.9 billion in cash.

In buying Lands' End for $62 a share, Sears is hoping to shore up its sagging apparel sales. Sales of the company's private brands have fallen in 11 of the past 12 months at stores open for at least a year.

"Sears' full-line stores have a problem in apparel, which they are trying to fix," said Bernard Sosnick, an analyst at Fahne- stock & Co. "With Lands' End, they now have a major brand."

Apparel sales at Sears account for $6 billion of Sears' revenue, which totaled about $41 billion last year.

Sears said it expect to introduce Lands' End products at many of its 870 full-line stores by fall. A complete product line is expected by the fall of next year.

In a conference call with analysts, Sears executives said Lands' End goods will be sold throughout Sears stores, not in designated Lands' End shops.

Lands' End, which had $1.6 billion in revenue during its fiscal year that ended Jan. 31, will continue to offer its complete product line direct to customers through its catalog and at its Web site,

Lands' End, which has 8,000 employees worldwide and is based in Dodgeville, Wis., will operate as a wholly owned Sears subsidiary. The company was founded in 1963.

David F. Dyer will remain as Lands' End president and chief executive.

Wayne Hood, a retailing analyst at Prudential Securities, said after-tax earnings from Lands' End will "more than cover" the cost of the acquisition.

Hood said he thought it unlikely that another bid would emerge for Lands' End. "Sales per square foot at Sears are around $145," he said. "The industry average is around $225. So Lands' End is worth more to Sears than it might be to other department store chains."

As a further disincentive, a 4 percent breakup fee is required if the deal is not completed.

Lands' End, which derives more than 90 percent of sales from its catalog and its site on the Internet, had been contemplating opening retail stores.

"This allows Lands' End to offer its line of merchandise on a platform that is not there today," said Asma Usmani, an analyst at Edward Jones. "It's a great forum for them."

The deal "has the potential to get an increasing share of the existing Sears customer's wallet and to bring back old or new Sears customers, at very little risk to either company," Hood said.

Under the terms of the deal, Sears will make a tender offer for all shares of Lands' End stock. The $62-a-share price represents a 21.5 percent premium over Lands' End's closing price of $51.02 Friday.

Lands' End shares surged on the news, closing up $10.71, or 21 percent, at $61.73, yesterday. Sears shares slipped 19 cents, to $52. Sears' stock has gained about 36 percent in the past year.

Gary C. Comer, founder and chairman of Lands' End, Richard Anderson, the company's vice chairman, and related trusts controlled by the executives have agreed to tender their shares, which account for 55 percent of the common stock.

Sears said it expects the deal to close next month. The transaction is expected at most to slightly dilute earnings this year and next, but it will "significantly" add to earnings in 2004, Sears executives said.

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