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Focus on New Shores: Sears Said Shopping Its Lands’ End Division

Sears is said to be shopping its Lands’ End business for an asking price of $1.2 billion, below the $1.9 billion it paid for the catalogue firm in 2002.

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NEW YORK — Is Lands’ End on the auction block?

Sears, Roebuck & Co. is said to be quietly shopping around its Lands’ End business, and the asking price is $1.2 billion, well below the $1.9 billion in cash the retailer paid for the famous catalogue company in 2002.

Financial sources in the mergers and acquisitions community said presentations have been made to a few select firms and individuals.

The list is surprising at first glance, but makes sense on further examination.

Those said to be eyeing Lands’ End include Texas Pacific Group, which is the majority stakeholder of red-hot specialty retailer J. Crew, and David Dyer, president and chief executive officer of Tommy Hilfiger Corp., according to bankers and one financial analyst in New York, who requested anonymity.

Dyer was formerly president and ceo at Lands’ End and was also executive vice president and general merchandise manager of Sears’ direct customer business before taking the top slot at Hilfiger. Prior to joining Lands’ End, Dyer was an independent catalogue-retail consultant for TPG and J. Crew from 1997 to 1998.

Dyer said “no comment” when reached by WWD on Monday. TPG could not be reached for comment.

The timing of a sale of Lands’ End is favorable. Sears and Kmart Holdings Inc. are in the middle of an $11 billion merger deal, which goes to a shareholder vote on March 24, and they may be looking to shed some assets. Meanwhile, the market remains flush with cash as buyers scurry to snap up well-known brands.

A Sears spokesman said that Lands’ End is not for sale. He then added, “Lands’ End is a cornerstone brand for Sears. One of the attractive elements of the merger [with Kmart] is the opportunity to have proprietary brands under one roof, whether it is Lands’ End, Martha Stewart, Craftsman, Kenmore or Joe Boxer. And keep in mind, we don’t comment on rumors in the marketplace.”

The Kmart-Sears deal, which is really an acquisition of Sears by Kmart that results in a new company called Sears Holdings Corp., is expected to close by the end of this month after shareholders in the two companies vote.

This story first appeared in the March 15, 2005 issue of WWD.  Subscribe Today.

Regarding Lands’ End, some retail analysts have noted that Sears hasn’t done much for the brand since it acquired the catalogue firm in May 2002, even though it was viewed at the time as a strong strategic fit. Some analysts have said that while the catalogue still looks good, the in-store shops need to be revamped.

Sears acquired the catalogue firm to give a boost to the retailer’s flagging apparel sales. At the time, Sears coughed up $62 a share for Lands’ End, which was a 21.5 percent premium to Lands’ End’s then-stock price of about $51. The $1.9 billion price tag was also 13.5 times the catalogue firm’s earnings before interest, taxes, depreciation and amortization. Lands’ End’s annual sales volume was $1.6 billion in 2001.

An investment banker in New York said on Friday that “Lands’ End is out there, but its not going to be a full auction. The company is being presented to the most likely buyers.”

“Texas Pacific Group has staked its claim on the buyout frontier with a reputation for roping in companies other investors wouldn’t touch with a 10-foot pole,” is how Hoovers.com describes the private equity firm, which is based in Fort Worth and has about $15 billion of assets in its portfolio.

Since being founded in 1993, TPG has been involved in 40 deals; it still owns about 32. Some of TPG’s more well-known acquisitions, aside from J. Crew, include: Del Monte Foods, the luxury brand Bally, Ducati Motor Holding SpA, Burger King, America West Airlines, ON Semiconductor, Bally Management Ltd. and Denbury Resources Inc. An initial public offering of J. Crew has been delayed by TPG until 2006, according to sources. TPG keeps mum about its investments.

Tommy Hilfiger executives have been more open about the company’s search for potential acquisitions.

The company completed its Karl Lagerfeld acquisition in January 2005. Dyer, in a conference call to Wall Street regarding third-quarter results on Feb. 2, acknowledged that the firm has an acquisition strategy, and that the Lagerfeld purchase represented the “first step in building a multibrand, multidistribution channel strategy.”

Dyer later said on the call that “we continue to look at other acquisitions that will be accretive, have strong management teams and give us growth.”

The current team at Lands’ End includes Mindy Meads, president and ceo, and Gwen Manto, executive vice president and general merchandising manager.

It is not immediately known which firm is handling the sale of Lands’ End. Peter J. Solomon, which represented Lands’ End when it was sold to Sears, is said not to be involved in the current exploration for a buyer. The investment bank could not be reached for comment.

Meanwhile, several financial sources in New York speculated that Goldman, Sachs & Co. is the likely front-runner to be the investment adviser on a deal because of the previous connections with Edward Lampert and William Crowley. Goldman Sachs said it does not comment on market rumors.

Lampert is chairman of Kmart, and will become chairman of Sears Holdings. He is also chairman and ceo of ESL Investments Inc., the hedge fund that bailed Kmart out of bankruptcy in 2003. Before founding ESL in April 1998, he worked at Goldman Sachs.

Crowley currently serves as Kmart’s senior vice president for finance, and will become chief financial officer of Sears Holdings. He is also president and chief operating officer of ESL. Prior to joining ESL in 1999, he was a managing director in the merger and acquisitions department of Goldman Sachs.

Last month, Lands’ End said it was cutting more than 375 jobs as part of a restructuring effort to reduce costs. The company said it was shedding 200 full-time staffers, 175 part-timers and some “seasonal” jobs too.

Management also said Lands’ End was closing its Cross Plains, Wis., call center on June 5. The company said phone orders have declined as consumers increasingly turn to other channels, such as the Internet, to shop for merchandise.

In September 2003, WWD reported that Lands’ End was “having a seismic effect on Sears.”

That fall, the Lands’ End brand was shipped to all 870 Sears stores. The acquisition was followed by a strong push by Sears into selling apparel online, something it had previously avoided.

For 2003, Lands’ End contributed about $1.6 billion of the $1.75 billion in sales of the Sears’ direct-to-customer business. In 2004, according to the retailer’s annual report, direct-to-customer sales totaled $1.61 billion. Sears did not break out sales of Lands’ End for 2004, but said, “Direct-to-customer revenues in 2004 declined 7.9 percent, primarily due to a decrease in revenues from the Lands’ End direct-to-customer business and the impact of the 53rd week in fiscal 2003.”

In the annual report, Sears said the Lands’ End business offers apparel and home goods “through multiple selling channels consisting of regular monthly mailings of its catalogues as well as through the Internet, international businesses and 17 retail stores.”

The retail stores average 6,100 square feet of selling space, and “also offer traditionally styled casual clothing for men, women and children primarily from overstocks of the catalogue and Internet channels.”

As of Jan. 1, Sears operated 873 full-line stores. Total revenues were $36.1 billion. Other business segments contributing to Sears’ annual revenue stream include 17 Great Indoor stores, which focus on home remodeling and decorating. The retailer also has 818 dealer stores, which are “primarily independently owned stores, predominately located in smaller communities.” The retailer also operates 245 Sears hardware stores and 51 Sears Outlet Stores.

— With contributions from Arthur Zaczkiewicz, Meredith Derby and Amy S. Choi

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