Sears makes play for Restoration Hardware
With $2.6 billion in cash on Sears Holdings Corp.'s books, billionaire Edward Lampert has said he is looking for acquisitions, so it was no surprise Monday when the company he controls bid $296 million for Restoration Hardware Inc.
However, retail analysts gave the proposed deal a mixed review.
"My first reaction was 'Is this a suicide mission?' " said John Melaniphy Sr., owner of Melaniphy & Associates Inc. in Chicago. "Maybe this is more of a financial move … Maybe Sears sees something I don't."
Lampert, 44, made his first billion dollars in hedge fund and real estate investment. So when he engineered the buyout of Kmart and later Sears in 2005, investors speculated he would turn Sears into a Berkshire Hathaway-like investment house. Large cash reserves could be used to invest in higher-growth retail, real estate, stock buybacks and hedge fund investments.
He hasn't spoken publicly about the Restoration bid.
Morte Madera, Calif.-based Restoration owns 110 stores across the country and six stores in the Chicago area, including stores in Deer Park, Naperville and Oak Brook.
The retro-themed retailer lost money in eight of the last nine quarters, including a $7.9 million loss in the last quarter. Sears, which divested from its home-furnishing HomeLife format years ago, also has been struggling with falling same-store sales.
Chicago retail analyst George Rosenbaum has been following Sears for years and says Restoration will add "trendier, hipper" products to Sears' hardware offerings.
"Sears is at the end of the line in terms of cutting costs," said Rosenbaum, chairman of Leo J. Shapiro & Associates in Chicago. "They have to improve their offerings. Their purchase of Lands' End failed miserably. I think the synergies will be very good."
A buyout offer was widely expected after Sears announced its stake in Restoration last week.
News of the proposed deal wasn't greeted warmly by Wall Street. Sears shares fell $4.81, or 4 percent, to $107.77 on Monday. The stock has dropped 36 percent this year.
Restoration shares rose 1 cent, to $7.07. Its shares are down 17 percent year to date.
Already Restoration's biggest investor with 13.7 percent of its shares, Sears said Monday it is prepared to buy out the rest for a nickel-per-share premium over a competing offer. Sears' tentative offer of $6.75 per share, made public Monday in a regulatory filing, is less than one percent above a dueling bid from private equity firm Catterton Partners.
It's also less than the current trading price of Restoration's stock, which has more than doubled in value since takeover speculation began at the beginning of the month. Wall Street may be betting a higher offer will be forthcoming.
Sears said it has repeatedly asked for access to Restoration's confidential financial information and would make a binding offer if those details are provided.
"As your largest stockholder, we are concerned by certain aspects of the management and director-led buyout," including entering a confidentiality agreement with Catterton in July, wrote Sears Senior Vice President William Crowley, in a Nov. 23 letter to Restoration.
A Sears spokesman declined to comment Monday, as did a spokeswomen for Catterton and Restoration Hardware.
Restoration has until Dec. 13 to solicit competing proposals to Catterton's buyout offer.