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Syms Corp. believes it just got the deal of a lifetime in Filene’s Basement.
This story first appeared in the June 23, 2009 issue of WWD. Subscribe Today.
“We’re certainly up to the challenge,” said Marcy Syms, president and chief executive officer of the Secaucus, N.J.-based off-pricer, of integrating the fellow off-price chain.
Syms is eager to retain the traditions and strengths of Filene’s as it combines the two businesses over the next two months. First up will be the consolidation and integration of back-office operations to create cost-saving synergies.
But, while back-office and similar functions may be combined, a lot will stay the same. A letter to vendors obtained by WWD and cosigned by Syms and Mark Shulman, president of Filene’s Basement, read: “Syms and Filene’s will retain their individual look and ‘flavor’ for which they have been historically known.”
The letter also said the combined company would be “back in the market, fully ready and fully able to do business and resume our purchasing relationship.” It said that “all of the great people you have historically worked with remain in position to work with you again.”
Shulman will remain on board along with his buying staff, Syms said, although titles and exact duties have yet to be worked out. She stressed, however, that Monday “was the first day that they’ve been in the market” toting open-to-buy dollars and looking for the best opportunistic purchases.
She emphasized Shulman is a “knowledgeable merchant who has the trust of his buying staff” and will be a key addition to the team. Additionally, the store personnel will be retained. The company’s distribution centers are expected to be consolidated and the integration of the back-office, buying, sourcing and purchasing functions will take place over the next six months. “But we expect to retain most jobs,” she said.
Syms said she was determined to add Filene’s Basement to the Syms family since she was approached by a law firm hired by an independent director of Filene’s Basement’s parent company in March. “I went to several stores and recognized that this would be an excellent strategic move for Syms.”
Although she said she could not have anticipated the furor of the auction process, which included competing bids from the Men’s Wearhouse and Crown Acquisitions, she was determined to keep “pursuing it. The businesses are highly complementary. We looked at the mix and saw their strength in women’s separates, which is 70 percent of Filene’s Basement’s floor space and sales, while Syms is 50 percent-plus men’s. We also realized the overlap in our vendor base is 60 to 70 percent.”
Michael Kollender, managing director and head of consumer and retail investment banking at Stifel, Nicolaus & Co., the financial adviser to Syms, said, “This was an excellent acquisition for Syms because the creation of a larger company increases their competitive capability, and is coupled with synergistic value based upon the geographic overlap of the two businesses.”
Syms agreed on June 18 to pay $65 million for 23 Filene’s Basement stores, fixtures and inventories. Vornado Realty Trust provided a portion of the funding for the transaction, paying $16.8 million to terminate the existing Downtown Crossing lease with Filene’s Basement in Boston, and an additional $8.2 million to amend the lease at the Union Square store in Manhattan.
Investors said Monday that, excluding Vornado’s contribution, Syms paid $40 million for the entire deal, or about $1 million for each of the 23 locations it acquired. They said the off-pricer stands to net a profit on sales of the inventory it acquired from Filene’s. It paid about $17 million for inventory worth $23 million, they said. Investors noted the deal makes sense once the firm ekes out synergies from operations via consolidation of distribution centers, headquarters and other operational efficiencies. They’re also hoping for changes in board composition, such as possibly Shulman taking on a director’s seat.
Andrew L. Sole, managing member of Esopus Creek Advisors LLC, which controls nearly 3.5 percent of Syms’ outstanding shares, said, “To our knowledge, this is the largest deal that Syms has ever consummated since it has been a public company. Syms will now be a business that does almost $600 million in annual sales.…Syms has a wonderful opportunity to maximize some of its underutilized-owned real estate assets located in New Jersey, Long Island and Florida. Syms could easily expand the Filene’s footprint by establishing new stores in these locations. They are owned properties, unencumbered by debt, and hence the company’s additional occupancy costs would be negligible.”
Down the road, Syms said there may be opportunity to convert some existing Syms stores to Filene’s Basements or vice versa. “But we need to understand the locations and consumer better,” she said, noting “co-branding in some locations” may be more likely. The same is true of DSW, the shoe retailer that was a sister company of Filene’s Basement. DSW will operate leased departments within Filene’s Basement and may do the same within Syms stores, she said.
Syms said financing for the deal was made possible by converting an untouched $40 million line of credit from Israel Bank into an asset-based line of credit. She said there is “no real urgency to work it down.” Debt of that level for a company of Syms’ size is “more than comfortable to live with,” she noted.
Syms operates 32 stores in the Northeast, Midwest, Southeast and Southwest. Filene’s Basement filed for bankruptcy on May 4.