Montgomery Ward Is In Talks
To Sell Unit For Over $1 Billion
By ROBERT BERNER
Staff Reporter of THE WALL STREET JOURNAL
CHICAGO -- GE Capital Services said that Montgomery Ward Holding
Corp. is in negotiations to sell its direct-marketing company, and that it
expects the unit to sell for more than $1 billion.
A high-ranking official for GE Capital, which owns a 50% stake in
Montgomery Ward Holding, told Dow Jones that the proceeds from the sale
of the unit would be used to help shore up Montgomery Ward's
money-losing retail businesses as part of a turnaround strategy. The official,
Edward D. Stewart, executive vice president of the division of General
Electric Co. declined to name the possible buyer for the Signature Group.
In April, Crain's Chicago Business cited industry sources in saying that
HFS Inc. is the likely buyer. HFS, which owns such well-known brands as
Days Inn, Avis Rental Cars and Century 21 real-estate brokers, said it does
not comment on speculation.
Analysts have speculated that CUC International Inc., the nation's largest
direct marketer, could be interested in buying Signature. CUC officials
could not be reached for comment.
HFS of Parsippany, N.J., however, has aggressively been making
acquisitions. Unlike CUC, which offers some of the same services as
Signature, HFS would be taking on a new business, analysts say.
Some analysts doubted that Chicago-based Montgomery Ward Holding,
which owns the Montgomery Ward & Co. retail chain, could get as high a
price for Signature as GE Capital said.
Keith Benjamin, an analyst for Robertson Stephens in San Francisco, said
doubts about Montgomery Ward's ability to survive would lower the value
of Signature. That is because much of Signature's sales are tied to
Montgomery Ward's credit card business. Signature markets such services
as life insurance, dental plans and road-side assistance directly to
Montgomery Ward card holders, as well as other individuals. Should
Montgomery Ward fail to turn around, Mr. Benjamin said, a buyer of
Signature "could lose hundreds of millions overnight."
Montgomery Ward, the nation's largest privately held retailer, which
pioneered the concept of mail-order shopping, has been losing money and
customers while swimming in debt, as it has failed to recognize changing
consumer needs. The company began languishing in the 1980s as customers
went upscale or chose to shop at discount stores like Wal-Mart Stores Inc.,
Kmart Corp. and Target, a division of Dayton Hudson Corp.
It had a net loss of $237 million last year. Chief Executive Roger Goddu
told Dow Jones that the company expects to lose about $248 million for the
first two quarters of this year. The company had provided the same figure
earlier this month to factors, who insure the receivables of some vendors to
the company.
Montgomery Ward's Mr. Goddu also acknowledged in an interview that the
retailer is facing a cash squeeze and edgy suppliers. He met with suppliers in
Chicago Wednesday to ease their concerns about the company, and said they
were "very supportive."
Mr. Goddu and GE Capital's Mr. Stewart both said they are confident the
retailer can execute a turnaround. In addition to raising cash from the sale of
Signature, the plan includes refinancing Montgomery Ward's approximately
$1.5 billion in short-term debt and closing "a relatively small" number of the
chain's 400 stores, Mr. Goddu said.
Signature had operating income of $71 million in 1996 on revenue of $741
million, according to investment banking firm Rodman & Renshaw. While
revenue was up 33% from $554 million the year before, the division's gross
margins slipped. Operating profits were $70 million for 1995. |
