TALES OF THE TAPE: Venator Holders Wait On Greenway
Dow Jones Newswires -- March 12, 1999
By Philana Patterson
NEW YORK (Dow Jones)--Some Venator Group Inc. (Z) investors want to know if Alfred Kingsley has another takeover in
mind or if he's going to wait for the company to turn itself around.
Kingsley is known for taking over companies, his most recent being Outboard Marine Corp. in 1997. He's also a tenacious
investor who's pressured companies to make changes and has been linked with other powerful investors such as Carl Ichan and
George Soros. He was involved in Ichan's takeover of Trans World Airlines Inc. (TWA) in 1986 and has battled with
companies such as Unisys Corp. (UIS), and Greyhound Lines Inc. (BUS).
Recently Kingsley and associate Gary Duberstein, through their investment vehicle Greenway Partners L.P., have amassed
more than 19 million shares of Venator's stock for a 14.1% stake. That hefty position has some investors trying to predict
Kingsley's next move.
Already kingsley's battled Venator over issues such as changing its name from Woolworth - he and Duberstein still refuse to
call it Venator. He also pushed the company, which runs athletic specialty stores such as Foot Locker, Lady Foot Locker,
Champs and other specialty formats, to sell its German Woolworth stores, as it did in September. Some investors now believe
he's planning a takeover.
"Kingsley's a smart guy," said one investor who requested anonymity. "He's not putting money into this thing for nothing."
Kingsley and Duberstein declined to comment for this story, but investors who subscribe to the Greenway takeover theory
believe Kingsley could swoop in and bid $8 to $10 a share. Others suggest he could be aligning himself with other large
shareholders to mount the takeover.
Venator officials didn't return several phone calls Thursday and Friday.
Many Investors Already Bailed Out
The idea that Kingsley could take over Venator on the cheap is a hard theory to swallow for investors who got in at higher
levels. Venator trades at 4 5/8, down 83% from its 52-week high of 27 1/4 set last March.
But the number of investors who have been holding Venator long enough for that to matter is falling. Many have lost patience
and bailed out in recent months as Venator's sales, in tandem with the rest of the athletic industry, continued to suffer. A low
level of contact between Venator and Wall Street analysts and money managers, as well as concerns about a revolving credit
agreement that appeared to be in jeopardy because of poor sales, exacerbated those worries.
Moreover, compared with other athletic retailers, Venator appeared to be behind the times. Competitor Just For Feet Inc.
(FEET) wooed shoppers by bringing entertainment and special events into massive footwear stores that offered shoes for the
entire family.
Eventually, other retailers began chipping away at Venator's market share. While Foot Locker's share of footwear sales
decreased in the past year, retailers such as Sports Authority Inc. (TSA), Footstar Inc.'s (FTS) Footaction unit, Just For Feet
and Finish Line Inc. (FINL) gained share, according to Footwer Market Insight President Mike Kormos.
"Venator missed a major shift when everything went to (large) stores developed by Just For Feet," Kormos said.
Decreased demand for high-priced sneakers that had once filled Foot Locker stores with 11-to-24 year-old males also hurt
business.
However, Venator's Lady Foot Locker and Kid's Foot Locker stores have gained share. Those formats continue to do well
because they appeal to a different customers than Foot Locker, Kormos said. Champs' share of athletic footwear sales
remained flat, he said.
Those conditions have led to heavy turnover in the stock. Venator shares have traded between 3 3/16 and 7 this year. Lehman
Brothers Inc. analyst Jeffrey Feiner pegs the company's book value at about $7.60 a share.
Investors Hungry For Something To Happen
A takeover bid between $8 and $10 could satisfy investors who got in cheap and are hungry for something to happen,
observers said. It also could give Venator's Chairman and Chief Executive Roger Farah an escape hatch. Turning the company
around has been a mighty task and some observers speculate that Farah, despite his success improving the company's balance
sheet, has grown weary and is ready to step aside. If Kingsley steps in, he is expected to focus on the core athletic store
business and possibly sell the other specialty business such as accessories chain Afterthoughts, apparel retailer Northern
Group and The San Francisco Music Box Co.
Or Kingsley could sit on his investment and wait for the turnaround that observers believe is under way.
Under Farah, Venator has disposed of operations that dragged earnings such as the F.W. Woolworth stores, Kinney shoes,
Footquarters and Randy River apparel stores.
In fiscal 1999, earnings from Venator's continuing operations fell to 2 cents a share, from $1.57 a year earlier. Without a $44
million gain, or 32 cents a share, from the sale of its Manhattan corporate headquarters, the company's continuing operations
would have shown a loss. Revenue fell to $4.5 billion from $4.6 billion a year earlier.
With the disposal of many unprofitable assets behind it, Venator can now focus more on its core athletic store operations,
some observers argue. Also, the athletic industry appears to be on the brink of a turnaround.
"I would be very surprised if Venator were to go under or fail," said Tara Schuchmann, managing partner of Dallas investment
management firm Tara Capital Partners.
Although Schuchmann doesn't own Venator stock she follows the athletic industry largely because she's betting that
improvements in the sector, a full season of basketball in 1999-2000 and the 2000 Summer Olympics will fuel sales of athletic
merchandise and benefit one of her holdings, Finish Line Inc.
"And all those things will benefit Venator as well," she said.
Additionally, the concerns about the company's financial condition were overdone, said Brown Brothers Harriman & Co.
analyst Donald Trott. The glut of inventory that bogged down athletic retailers in 1998 has largely been worked through, he
added.
This Year Could Be More Profitable
Trott expects Venator's comparable-store sales to be "flattish" in the first half of the year and to rise 2% to 3% in the second
half. His fiscal 2000 earnings estimate for the company is 33 cents a share. Feiner expects sales will rise to about $4.9 billion in
fiscal 2000.
The company continues to close unprofitable stores and renovate or relocate others. Foot Locker, Lady Foot Locker, Kid's
Foot Locker and Afterthoughts stores that had been renovated or relocated had strong sales increases once they reopened, the
company has said. In fiscal 1999 Venator opened 651 stores, remodeled or relocated 459 stores and closed 343 stores. In fiscal
2000 the company plans to spend $100 million to open or remodel 350 stores. The reduction of unprofitable stores coupled
with the elimination of several formats should improve the company's productivity and its expense-to-sales ratio, according to
Feiner.
So Kingsley could wait for Venator to deliver on its plans to become more profitable and watch the stock price rise in
response. Or, he could take matters into his own hands.
But one thing's for sure, one observer said of Kingsley: "He doesn't like to lose."
-By Philana Patterson (201) 938-5360 |
