BENETTON COULD GET CONTROL OF U.S. SHOE WOMEN'S UNIT

Byline: Valerie Seckler

NEW YORK--U.S. Shoe is negotiating aggressively to sell its troubled $1.3 billion women's apparel operation, and through a deal with the Milan-based Luxottica Group, Benetton could end up running the business.
Reports about the bartering surfaced Friday, when Luxottica, an eyewear manufacturer, launched a $1.14 billion bid to buy the entire Cincinnati-based U.S. Shoe.
Analysts, who spoke on condition of anonymity, said U.S. Shoe is talking with Benetton Group SpA and "financial buyers" to sell its women's specialty chains, dominated by Casual Corner. They also said U.S. Shoe probably would realize a net gain on the sale of the division rather than take a loss.
A spokeswoman for Benetton Services Corp., the U.S. arm of Benetton Group, declined to comment on the reports.
While it is unclear whether Benetton would take over management of the stores or convert them to its own format, one thing is certain: The chain has big plans for the U.S. Last September, a senior Benetton executive indicated there were plans to develop 200 megastores in key locations in the next few years.
Robert Burton, director of investor relations at U.S. Shoe, acknowledged that the company "is still looking at a number of potential transactions," but would not comment on the reported players.
Luxottica's $24-per-share cash tender offer Friday followed unsuccessful efforts since last December to buy U.S. Shoe in a negotiated cash transaction. The bid represents a $5.25 premium over U.S. Shoe's closing price of $18.75 Thursday on the New York Stock Exchange. On Friday, U.S. Shoe's stock jumped 5 3/8, closing at 24 1/8, as 7,593,500 shares changed hands. The issue's average daily volume is 340,800.
Luxottica said if it acquires U.S. Shoe, it "intends to sell or otherwise dispose of U.S. Shoe's women's apparel and footwear divisions" after it reviews those businesses. Luxottica's stock fell 7 1/8 points Friday, closing at 32 1/2 on the New York Stock Exchange. About 1.1 million shares of Luxottica were traded, compared with the issue's average daily volume of 28,800.
Sources said if Luxottica completes the tender offer, it was possible the eyewear maker could also sell the apparel business for a gain.
"There's lots of value in the apparel business, despite the fact it's losing money," said Todd Slater, analyst at UBS Securities. "Casual Corner has high brand-name equity. Even though it's losing money this year, Petite Sophisticates made money for the last four years. August Max has value in its cheap leases. The outlet division [operating 100 Casual & Co. stores] is making money."
Richard Jaffe, analyst at Wertheim Schroder, said the Casual & Co. stores are the most productive women's shops in outlet centers, producing sales of $225 to $240 per square foot.
"They probably can get 8 to 10 percent operating margins," he said, adding that the chain is expected to grow to 200 units this year and to 400 by the end of 1996. "It's a very attractive business."
Jaffe cited Petites and August Max as businesses with value.
Although Jaffe termed Casual Corner "the gamble," another analyst said he believed the business could be turned around.
"It's just being mismanaged," the analyst contended. "I'd be rich by now if I had a nickel for every person who told me Ann Taylor and Sears were finished a few years ago."
Jaffe said he thinks U.S. Shoe management "has realized since November that unloading apparel is the critical link in enhancing shareholder value."
Casual Corner, the largest division in U.S. Shoe's women's apparel group, with $700 million in sales, has been a drag on corporate earnings.
As reported, U.S. Shoe said it expects a fourth-quarter loss of 18 cents to 23 cents a share, far deeper than the 2-cent loss Wall Street anticipated. U.S. Shoe earned 18 cents a share in the prior-year period.
It said weak sales at Casual Corner and Petite Sophisticates offset strong performances at LensCrafters and footwear units. U.S. Shoe's apparel business is expected to have operating losses of about $29 million in the fourth quarter and $60 million for the year.
"This looks good," said Slater, at UBS Securities, commenting on the likelihood the Luxottica deal will be completed. "I think it'll happen a little higher. The stock was at $26 in August," when Nine West made its first offer of $425 million for the shoe business. Nine West went up to $600 million, but pared it down to $525 million, at which point U.S. Shoe stopped negotiating.
Analysts said that even if Luxottica ups its offer to around $28 a share to fend off competing bidders who remain in the picture, the Italian eyewear manufacturer would be able to acquire LensCrafters for less than it's worth.
They valued a stand-alone LensCrafters at $800 million and worth even more to a strategic such as Luxottica. A $28-a-share offer for U.S. Shoe ($1.3 billion) would translate to a $775 million payment for LensCrafters, they said. LensCrafters had sales of $706 million for the year ended Jan. 31.
This would leave Luxottica free to unload the footwear business to Nine West for the $525 million offered two weeks ago by the footwear company, and give it some extra room to deal the apparel division, they reasoned.
Luxottica said it has gotten a commitment from Credit Suisse to provide a $1.45 billion credit facility, which will be used to finance the deal and provide working capital.
U.S. Shoe officials said Friday it is advising shareholders to await an evaluation by the board and its advisers before tendering their shares. The company said the board would have a recommendation by March 16.
Greenway Partners L.P., which holds about 2.2 million shares or 5 percent of U.S. Shoe stock, said in statement it is evaluating the Luxottica offer.
"We have been saying for some time now that U.S. Shoe has a potential that wasn't reflected in its stock price," said Gary K. Duberstein, managing director of Greenway. "The Luxottica bid, especially on the heels of the Nine West offers for the shoe division, underscores our point."--Fairchild News Service

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