U.S. SHOE TARGETING SALE OF WOMEN’S RETAIL UNIT

Byline: Valerie Seckler

NEW YORK — U.S. Shoe will focus on selling its women’s retailing business, sources said Thursday, after the firm agreed to sell its footwear unit to Nine West and rejected Luxottica’s $1.1 billion hostile takeover bid.
In rejecting the $24-per-share cash tender offer, U.S. Shoe said it has “made progress in talks with other parties” toward selling its women’s retailing and LensCrafters units.
The women’s division, anchored by Casual Corner, generates sales of $1.3 billion annually. LensCrafters has annual sales of $767 million.
“To shelter the tax gain U.S. Shoe got with the sale of the shoe division, the next logical step would be the sale of the apparel division,” said a source close to the firm, based in Cincinnati.
Another source acknowledged that a sale of the women’s unit below its book value would enable the company to write down a small part of the footwear gain. Analysts have said the division could be sold for $50 million to $100 million, though its book value has not been disclosed.
Analysts noted that U.S. Shoe would incur substantial taxes by selling LensCrafters and suggested the company may ultimately retain the chain.
Wall Street is looking for Luxottica to hike what would now represent roughly a $14-per-share bid for U.S. Shoe’s women’s and LensCrafters units.
With a payment of about $590 million for its shoe business, U.S. Shoe has established a post-tax value for the division of about $10 per share, analysts said.
This brings Luxottica’s original cash tender offer of $24 per share for all three divisions down to $14 for the remaining two — substantially less than the $17-per-share stand-alone value Wall Streeters attach to LensCrafters. It would be worth more to a strategic buyer such as Luxottica, analysts contended. Nine West paid about $585 million for the footwear unit.
Moreover, the Italian eyewear maker’s $1.45 billion credit line from Credit Suisse “gives them quite a bit of room to negotiate,” said Todd Slater, analyst at UBS Securities. “They can go to $31 per share.”
Claudio Del Vecchio, managing director, Luxottica, said Thursday in a letter to Bannus B. Hudson, U.S. Shoe president and chief executive officer: “We are confident that we can satisfy any concerns you may have with respect to our offer if you discuss those concerns with us. We are ready to meet with you immediately.”
Analysts said they would be extremely surprised if Luxottica walked away from the deal, because officials of the Milan-based company have made it clear they want LensCrafters and they have the funds to get it.
U.S. Shoe stock closed at 25 3/4 on the New York Stock Exchange Thursday, up 1, as 1,118,500 shares changed hands. Average daily volume is 340,800.
— Fairchild News Service