NEW YORK -- Federated Department Stores Wednesday finally pulled the plug on its troubled Fingerhut subsidiary.
The company announced plans to sell the internet and catalog operation and expects to generate about $1.1 billion to $1.3 billion in after-tax proceeds over the next four years from the maneuver. Fingerhut has been a sore point with investors ever since Federated bought the company for a pricey $1.7 billion in February 1999. Federated was never able to turn Fingerhut into a revenue generator.
Fingerhut was bought at the height of the Internet boom, and Federated believed Fingerhut's fulfillment operations would be instrumental in building its Internet business and expanding its catalog. But Federated recently scaled back on its direct to consumer operations, shutting down bloomingdales.com's e-commerce component, reducing the assortment at macys.com, and discontinuing the Macy's catalog due to sinking prospects for selling and making profits.
In addition, Federated ran into problems with Fingerhut credit card delinquencies.
Some of the proceeds of the Fingerhut disposals will be used to build up Federated's department store business, for stock buybacks and for reducing debt besides that associated with Fingerhut. Federated has to pay down about $500 million in asset-backed debt related to Fingerhut and expects $800 to $950 million in after-tax, one-time costs, of which $150 million to $200 million will be after-tax charges.
"We have determined that there no longer is strategic value to Federated in retaining Fingerhut's operations and we have no expectation that these businesses would contribute meaningfully to the company's future financial performance," James Zimmerman, Federated's chairman and chief executive officer, said in a statement Wednesday.
He also said it is unlikely a buyer for the Fingerhut catalog will be found, given the economic climate and the specialized nature of the business, and that Federated is prepared to close down the operation. That means about 6,000 people employed by the core Fingerhut catalog could lose their jobs.
Federated does expect to sell other catalogs in the Fingerhut portfolio, including Arizona Mail Order, which issues the Old Pueblo Traders book; Lew Magram, Brownstone Studio, Figi's, Popular Club and Bedford Fair catalogs.
"It's a painful admission by Jim Zimmerman that Federated, going out of its core competency [in] department stores in rocky economic times, was a bad idea," said Isaac Lagnado, president of Tactical Retail Solutions. "Unfortunately, this is the last chapter of a long history at Federated of trying to diversify unsuccessfully outside of department stores."
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