BARBARIANS AT THE MALL
Sep 1, 2006 12:00 PM, By Elaine Misonzhnik
| Announced | Acquirer | Target | Financial Sponsor | Value |
|---|---|---|---|---|
| January | SuperValu Inc; CVS Corp Cerberus Capital Management LP Kimco Realty Corp Schottenstein Stores Corp Lubert-Adler Real Estate Funds Klaff Realty LP | Albertson's Inc | Cerberus Capital Management LP | 17.4 |
| July | Bain Capital Inc Blackstone Group LP | Michaels Stores Inc | Bain Capital Inc Blackstone Group LP | 6.0 |
| June | Clayton Dubilier & Rice Inc | Sally Beauty Co Inc (47.5%) | Clayton Dubilier & Rice Inc | 3.0 |
| January | Bain Capital Inc | Burlington Coat Factory | Bain Capital Inc Warehouse Corp | 2.0 |
| July | Leonard Green & Partners LP Texas Pacific Group | PETCO | Leonard Green & Partners LP Texas Pacific Group | 1.8 |
| * announced through July 31 | ||||
| Source: Dealogic | ||||
ESL Investments' buyouts of Kmart and Sears are a big reason why observers are leery of private equity takeovers of retailers.
When Lampert took control of Kmart in 2003, the retail operations had been in decline for up to three decades. Even before ESL Investments pushed the company to capitalize on its real estate assets, Kmart closed hundreds of stores and laidoff tens of thousands of employees.
Lampert, along with Martin Whitman's Third Avenue Value Fund, invested in Kmart's $1 billion debt while it was in bankruptcy. The company closed more than 600 locations, providing him with $3 billion he could use to buy Sears, Roebuck & Co. Kmart's stock shot up by more than 130 percent, but same-store sales suffered.
The combined Kmart/Sears behemoth has struggled mightily in developing a coherent retail strategy. Sears Holdings reported operating income up 4.1 percent during the second quarter — above the 2.7 percent figure from a year ago. But sales declined 3.8 percent during the same period last year, evidence that the company's fortunes have been from aggressive cost-cutting, not from improved performance, according to analysts. Net income has fallen from $1.106 billion in 2004 to $858 million last year, a decrease of more than 22 percent. Earnings per share dwindled from $11 in 2004 to $5.59 in 2005.
“With little investment in its stores, declining market share, and no clearly articulated turnaround strategy, we find it hard to believe Sears is going to stage a comeback,” writes Morningstar analyst Kimberly Picciola. “We anticipate Lampert will milk the retail business for cash and use his investing prowess to generate a return.”
Meanwhile, Sears management keeps playing with the store stock and transforming Kmart locations into new Sears locations. With the merged company's current stock of approximately 1,479 Kmart locations and 2,300 Sears outposts, Picciola expects that over the next several years Lampert will slowly sell off the chains' real estate assets, as more and more stores fail to bring in desired results. Kmart stores are generally leased and range from 80,000 square feet to 190,000 square feet. Many Sears locations, averaging from 63,000 square feet to 200,000 square feet, are owned.
Acceptable Use Policy blog comments powered by Disqus
