Spin-Off Research In the News

Lands' End spinoff plan detailed

Posted by Joe Cornell, CFA on Wed, Mar 12, 2014 @ 09:03 AM

Spin-Off, IPO, Spinoff, Carve-out, Joe Cornell

By Robert Channick and Alexia Elejalde-Ruiz, Tribune reporters | March 12, 2014

Sears Holdings will receive $500 million cash dividend, rent

sears, lands end, joe cornell, spin-off, spinoff, ipo, carve-out

A Lands’ End employee organizes apparel at a store in Torrance, Calif. Though the company’s spinoff date from Sears Holdings Corp. isn’t set, Lands’ End will pay Sears a cash dividend of $500 million before the spinoff, financed by a new term loan. (Patrick Fallon, Bloomberg)

Casual clothing retailer Lands' End has moved one step closer to setting sail as a stand-alone company.

Sears Holdings Corp. filed an amendment with the Securities and Exchange Commission on Tuesday, further detailing plans to spin off its profitable Lands' End business, a relative bright spot in the struggling retailer's portfolio.

Though the spinoff date isn't set, Lands' End will pay Sears a cash dividend of $500 million before the spinoff, financed by a new term loan. Lands' End may also borrow up to $175 million for working capital, according to the filing.

Analysts say the cash dividend will help Sears reduce its debt, but they are skeptical that it will turn around the parent company's fortunes in the long run.

"They're kind of burning their table legs as kindling at this point," said Joe Cornell, principal of Chicago-based Spin-Off Advisors LLC. "It's a way for them to extract some value — it buys time."

The Hoffman Estates-based Sears has seen its sales decline since billionaire hedge fund manager Edward Lampert combined Sears and Kmart in an $11 billion deal in 2005. In recent years, Sears has spun off Orchard Supply Hardware and Sears Hometown and Outlet stores, among other assets.

Lands' End, founded in 1963 in Chicago to sell sailboat hardware and equipment by catalog, is best known for selling casual clothing and home products to shoppers with an average household income of $104,000.

Sears purchased the company for $1.9 billion in 2002. Preliminary financials detailed in the amendment show that Lands' End revenue was relatively flat in fiscal 2013, coming in at $1.56 billion. Net income rose to $78.9 million for the year, up from $49.8 million in 2012, largely because of reduced payroll and restructuring costs incurred in 2012.

Despite Lands' End taking on new debt, its prospects may be brighter than its parent company's, according to Cornell, increasing its borrowing capacity and inviting investment as it separates from Sears. Lands' End will be publicly traded and will apply to be listed on the Nasdaq exchange, a condition of the spinoff.

After the tax-free distribution, owners of Sears Holdings will have an equal stake in Lands' End. Lampert's hedge fund, ESL Investments, owns 48.4 percent of Sears Holdings and will own the same percentage of Lands' End common stock, according to the filing.

Lands' End generates about 82 percent of its revenues through e-commerce and catalog sales.

The balance of its sales are through retail stores, most of which are located within Sears stores.

As part of the spinoff, Lands' End will enter into a lease agreement, initially paying Sears about $27 million in total annual rent for 253 locations. Most of the leases have four- to six-year terms, with the shop count dropping to about 102 locations by 2019, according to the filing.



View article on chicagotribune.com: Sears filing details plan to spin off Lands' End

Tags: Sears Spin-Off, Lands End Spin-Off