Analyst: Potential Bidders Might Jettison Softer Side

Discussion
Dec 15, 2004
George Anderson

By George Anderson


Craig R. Johnson, president of Customer Growth Partners, told the Chicago Sun-Times he doesn’t think the Sears/Kmart is a match made in heaven. He also doesn’t think that the proposed merger between the discounter and department store chain is a done deal.


In fact, Mr. Johnson believes that it’s likely that another department store chain may make a bid for Sears. Even better, he said, would be if Home Depot or Lowe’s decided to enter the fray.


Mr. Johnson believes the DIY retailers make sense because they have the financial wherewithal to make the deal and because Sears’ strength (home appliances and tools) is a clear fit with the chain’s existing business.


Should Home Depot or Lowe’s make a bid and become the eventual winner, Mr. Johnson would expect the company to sell or spin-off Sears’ softer side of the business.


According to the Sun-Times report, Sears has a 37.6 percent share of the $36 billion home appliance market, followed by Lowe’s with 14.1 percent and Home Depot with a 6.2 percent. Sears’ has seen its share of market decrease in recent years as its DIY rivals and others have gained ground.


Moderator’s Comment: What merger/acquisition scenario do you believe makes the most sense for Sears?


The Chicago Sun-Times article cited another analyst report suggesting that Vornado is only likely to pursue Sears if it can get the company at the
right price.


Gimme Credit, an independent research firm in New York, said beating Kmart’s bid to acquire Sears would hurt Vornado’s debt rating.


“Given (Vornado’s) reluctance to overpay for assets, we would not be surprised to see Vornado pocket its gain — in excess of $100 million — on the Sears
investment, and focus on other opportunities,” according to the firm’s report.

George Anderson – Moderator

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