Mobil Planning to Reorganize, Divest Wards
Nine years after its controversial acquisition of Montgomery Ward, Mobil Corp. said Monday that it plans to divest the giant retail business after reorganizing it into a smaller, leaner company.
The oil company’s action ended months of speculation on Wall Street that Mobil would put Montgomery Ward up for sale because of a string of disappointing profits and sales. It follows restructuring moves by other major oil companies, including Los Angeles-based Atlantic Richfield, that have reacted to declining profits and takeover threats.
Mobil drew immediate criticism after it began acquiring Marcor Inc., the holding company for Montgomery Ward and Container Corp. of America, in 1974. The acquisition, completed in 1976 at a total cost of $1.7 billion, followed the 1973 oil crisis, which brought huge profits to Mobil and most other U.S. oil firms.
Profits to Diversify
Industry critics used Mobil as an example of how oil firms were using profits to diversify instead of developing oil reserves as a hedge against future energy shortages. The company’s action was often cited in drumming up support for federal legislation enacted in 1979 to tax oil firms’ so-called windfall profits. Mobil defended its Montgomery Ward investment by arguing that regulatory restraints had limited opportunities in the oil industry and that the company needed to diversify.
Montgomery Ward proved a costly, troublesome venture for Mobil. The New York-based oil company has pumped hundreds of millions of dollars into the retailer, whose merchandising strategy fluctuated much more than those of major competitors such as Sears, Roebuck & Co. and K mart. Con sumers were confused by the changes in direction, and Montgomery Ward sales suffered.
The chain suffered years of losses before turning a small profit in 1983. Last year, the Chicago-based retailer had profits of $53 million on sales of $6.5 billion. Mobil had total 1984 profits of $1.27 billion and revenues of $60.47 billion.
The chain has been operating without a president and chief executive since January, when Stephen L. Pistner abruptly resigned.
“With Montgomery Ward, Mobil fairly consistently had been losing money. It was only a matter of time” before the company divested the chain, said David Ullom, an analyst with the Los Angeles brokerage firm of Bateman Eichler, Hill Richards. “When Pistner left, you knew it presented an opportunity to look at Montgomery Ward and look to an alternative strategy.”
Businesses Reviewed
Earlier this year, Mobil hired the New York investment banking firm of Goldman Sachs to review the company’s various businesses. Mobil Chairman Rawleigh Warner Jr. said in a statement Monday that, based on the study, the company decided to reshape Wards to “operate as an independent, free-standing, profitable retail company without Mobil ownership or financial guarantees.”
He said that Wards will be “smaller and more concentrated” and that its administrative costs will be significantly reduced. Mobil, which has closed 68 stores in the last four years, now operates 320 Montgomery Ward stores and 44 Jefferson Ward discount outlets, with 31 billion square feet of selling space and 78,000 employees, a spokesman said.
No Sale Negotiations
Mobil, which has not had to inject capital into Montgomery Ward since 1982, said it has not previously held negotiations for the sale of Montgomery Ward. But the company would not specify whether it will now make Wards an independent company through a sale or a spinoff to shareholders.
The restructuring will concentrate on Montgomery Ward’s retail, credit and insurance business and will involve disposal or elimination of unprofitable segments of those businesses as well as money-losing portions of the chain’s catalogue business.
The company would not elaborate on what segments would be cut back. In January, Montgomery Ward closed 300 catalogue stores, eliminating about 1,200 jobs.
$500-Million Write-off
Mobil said it will write off about $500 million after taxes in 1985 to cover the cost of the restructuring.
To oversee the reorganization, Mobil named Bernard F. Brennan as Montgomery Ward’s new president and chief executive. Brennan had served one year as executive vice president at Montgomery Ward before joining Household Merchandising, a unit of Household International, as president and chief executive in October, 1983.
That Montgomery Ward was not a successful venture to Mobil came as no surprise to some analysts. John S. Landschulz, who follows retailing for Mesirow & Co., a Chicago brokerage, said that “retailing has never blended well” with non-retail companies. “I think Ward was hard-pressed to exist without the help of Mobil in the last few years, but its future lies in being independent.”
Low Investment Return
The decision to divest Montgomery Ward stemmed in part from the retailer’s low return on investment, which has been viewed by some as a mixed blessing for Mobil.
Ullom at Bateman Eichler said: “If they keep Montgomery Ward, it acts as a shark repellent in that nobody wants to buy Montgomery Ward as part of Mobil because of its low return on investment. However, it acts as bait because the continued ownership . . . also keeps the stock price low . . . (and a) lower stock price means a takeover prospect.”
The price of Mobil shares on the New York Stock Exchange fell 50 cents Monday to $32.625 on a volume of 2.6 million.
Other Segments Studied
Goldman Sachs is also reviewing other segments of Mobil’s business, including Container Corp., which makes paperboard products.
Montgomery Ward’s 1984 profit of $53 million on sales of $6.5 billion was an increase from its 1983 net income of $40 million on sales of $6 billion. In the first quarter ended March 31, however, the chain had a $2-million loss on sales of $1.23 billion, versus a $3-million loss on sales of $1.27 billion in the first quarter of 1984.
“We fully expect to be profitable in 1985,” a spokesman for the company said.
