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Sears Spins Off Lands’ End

03/18/2014

SPINOFF_LOGO_HIRES_ONBLACKLands’ End will be back on its own as a publicly traded company following a formal announcement by parent company Sears Holdings to spin-off the formerly well-known apparel brand.

The move follows years of speculation that Sears would divest the brand – most likely via sale. Sears Holdings acquired Lands’ End in May 2002 for $62 a share. At the time, Lands’ End was a publicly traded company with revenues of nearly $1.6 billion, profits of $67 million and earnings per share of $2.23. The $62 a share Sears paid 12 years ago represented a 21.5% premium over the closing pricing of $51.02 prior to the announcement of the deal.

Sears Holdings has completed a number of spin-offs to date and continues to do so as part of its strategy. In late 2012 it spun-off a portion of its interest in Sears Canada, Sears Hometown and Outlet Businesses and received $446.5 million in gross proceeds. In 2011 Sears Holdings spun-off its interest in Orchard Supply Hardware Stores. Sears is currently considering strategic alternatives for its Sears Auto Centers.

What’s the deal with all these spin-offs? Sears Holdings believes that the separation of Lands’ End will result in both companies having simplified and more focused businesses, with a better ability to dedicate resources, pursue unique growth opportunities and execute strategic plans best suited to their respective businesses – blah, blah, blah. Here’s where the rubber meets the road however, the spin-off requires Lands’ End to send a couple hundred million (of borrowed money) to Sears Holding. The spin-off will increase the overall borrowing capacity of Lands’ End – which has been unable to borrow enough money to fill the pipeline with product.

Soon after the spin-off both Sears Holdings and Lands’ End will take a hit in valuation. For Lands’ End it may be a temporary downgrade. If Lands’ End is capable of bringing its brand to the prominence it once enjoyed it just might come out of this nightmare AOK.

And so, the saga continues.

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