Michaels may go on block

Sale of arts, crafts retailer one of many options

CEO retires

March 21, 2006|By ANDREA K. WALKER | ANDREA K. WALKER,SUN REPORTER

Michaels Stores Inc., the national arts-and-crafts retail chain that has grown on the renewed popularity of scrapbooking and knitting, said yesterday that it is looking at selling the company.

The Texas-based retailer has created a multi-generational following by expanding into big-box shopping centers and capitalizing on America's growing appetite for arts and crafts. Kids buy art supplies for their school projects and adults often feed their sewing or cake-decorating hobbies. The company said it's for the "do-it-yourself home decorator."

The large stores carry thousands of items, from craft materials to picture frames to wedding-cake toppers and coloring books. The company has grown more than 5,000 percent in the past decade and today has a market value of $5.06 billion and no debt.

But now Michaels executives believe it's time to move in a different direction.

Along with the possibility of a sale, the retailer also announced yesterday the retirement of Michael Rouleau, the president and chief executive officer who over the past decade led the transformation of the chain into a leading arts retailer.

Executives at Michaels were not available for comment yesterday.

In a four-page statement, the company said it has hired JPMorgan as its financial adviser. It said that selling the company is one of many options it is considering to enhance shareholder value.

The process is expected to take several months.

"Our decision to explore strategic alternatives is driven by a commitment to create value for our shareholders and exciting new opportunities for our employees, while positioning the company to expand market share, improve customer service, and deliver strong performance," Charles J. Wyly Jr., the company's chairman, said in the statement.

Michaels operates 896 stores in the United States and Canada, including 21 in Maryland. Michaels also owns 165 Aaron Brothers stores, 11 Recollections stores and four Star Wholesale operations. The company had just 16 stores in 1984 when it became a publicly traded company, according to its Web site.

Today, its biggest competitor, A.C. Moore Arts & Crafts, has 100 stores.

The private market

While the retailer could be acquired by a public company, analysts said this could be a way for Michaels to leave the public realm for the private market, a growing trend in the retail industry.

Last year, high-end retailer Neiman Marcus sold its publicly traded company for $5.1 billion to two private equity firms, Texas Pacific Group and Warburg Pincus LLC. Toys "R" Us was purchased for $6 billion by a group of investors that included Kohlberg Kravis Roberts, Bain Capital Partners and a real estate trust.

Some companies tire of the regulatory hurdles, which have become worse because of stricter requirements created by the Sarbanes-Oxley corporate governance law, analysts said. Others believe it will be easier to operate the company and try out new ideas without worrying about stock price, constant earnings increases and pleasing shareholders.

"These are companies that get cold calls from private equities and they find that there is a similar language," said Richard Hastings, a retail analyst with Bernard Sands in New York. "Wall Street is searching for consistency and predictability and retailers are living in a very volatile world dominated by change."

Many companies that are expanding often turn to the public market to raise cash. A company like Michaels, which is no longer in high-growth mode, may no longer depend on the public market for financing.

"Maybe the feeling is that maybe the company is worth more going private or as part of another company," said Ivan Feinseth, director of research at MatrixUSA, an institutional research and brokerage firm in New York."Today, unless you're really gaining the benefits of being a public company, it may not really be worth it - when you're expanding or making acquisitions or have some use for public financing."

Feinseth also said that Chairman Charles Wyly and his brother, Sam Wyly, who is part owner of the company, could be trying to raise its value in preparation for their retirement. The brothers have a 7.8 percent stake in the company,

First store

Michaels was founded in 1973 by Michael Dupey, who opened the first location in a former Ben Franklin variety store, according to Bloomberg News. His father sold the chain in 1983 to Peoples Restaurants, run by the Wyly family. Peoples spun the chain off to its shareholders the following year.

Michaels said it would leave the CEO post vacant as it considered the company's future. It named Jeffrey N. Boyer, executive vice president and chief financial officer, and Gregory A. Sandfort, executive vice president and general merchandising manager, as co-presidents to replace Rouleau.

Michaels stock jumped nearly 13 percent yesterday to close at $38.35.

andrea.walker@baltsun.com

Michaels may go on block

Sale of arts, crafts retailer one of many options; CEO retires

896

Stores operating in the United States and Canada

21

Stores in Maryland

$3.7 billion

Sales for fiscal year 2005, which ended Jan. 28

$131 million

Net income in fiscal 2005

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