Wickes to Buy G&W;'s Consumer, Industrial Units for $1 Billion
Wickes Cos., the Santa Monica-based retailer that emerged from bankruptcy reorganization four months ago, said Sunday that it has reached agreement in principle to acquire the consumer and industrial products businesses of Gulf & Western Industries for about $1 billion in cash.
As part of the deal, Wickes also will assume $90 million in long-term debt of the acquired businesses and will grant New York-based G&W; an option to purchase 10 million shares of Wickes common stock at $6 apiece sometime within the next five years. That amounts to 10.4% of Wickes’ common stock currently in the hands of investors. Wickes stock stood at $4.50 at the close of trading Friday on the Pacific Stock Exchange.
Announcement of the planned acquisition came less than three weeks after Wickes Chairman and Chief Executive Sanford C. Sigoloff disclosed at the company’s annual meeting that a major acquisition would take place within the next year. It also comes after a week of active trading in G&W; stock, which rose $2.875 to $41.125 on volume of about 2.25 million shares.
With the acquisition, Wickes, which operates Builders Emporium and Wickes Lumber, will obtain G&W;'s Kayser-Roth unit, which produces a variety of apparel sold under such brand names as Catalina, Cole of California, No-Nonsense, Supp-Hose and Burlington. It also sells apparel under licensing agreements with Calvin Klein, Liz Claiborne, Cheryl Tiegs and Jonathan Logan.
As part of the deal, Wickes also purchases Simmons, a major manufacturer of bedding and home furnishings; A.P.S., an automotive parts distributor, and G&W; Manufacturing, a producer of automotive, electronic and construction products. The sale is subject to a definitive agreement and approval by both companies’ boards of directors.
The acquisition should nearly double Wickes’ sales. For the fiscal year ending July 31, G&W;'s consumer and industrial products group is expected to have $2.7 billion in total sales and slightly more than $200 million in operating income, before corporate expenses. Wickes, which had been sheltered from creditors by Chapter 11 of the U.S. Bankruptcy Code from April, 1982, until last January, had sales of $3 billion and operating income, before interest and corporate expenses, of about $66 million in the year ended Jan. 26, 1985.
‘Unhappy’ With Performance
Without the consumer and industrial products units, G&W; said it expects fiscal-year revenue of $3.1 billion and operating income, before corporate expenses, “to approach” $400 million.
While G&W; had not been actively trying to sell its consumer and industrial businesses, analyst Martin Romm of First Boston said, the company had been “unhappy” with their overall performance. “They’ve done a decent job in building the business, but they saw very limited opportunities in future growth,” Romm said.
Philip A. Cavalier, analyst with the Pershing division of Donaldson Lufkin Jenrette, said the fact that G&W; took an option to buy Wickes’ stock reflects underlying confidence in the potential of the consumer and industrial group, he said. “It is a really fine operation. Wickes is lucky to get it.”
Wickes’ Sigoloff said in a telephone interview from Budapest, Hungary--where he is addressing an international business symposium--that he had heard G&W; might be amenable to selling those businesses. He first approached G&W;'s chairman and chief executive, Martin S. Davis, this spring at a client conference in Los Angeles of the brokerage firm of Drexel Burnham Lambert. Drexel later worked with Wickes on developing a deal. A few days after the Wickes annual meeting last month, Sigoloff went to New York where he made Davis an offer of purchase.
A major acquisition would allow Wickes to take greater advantage of certain tax benefits that arose from heavy losses in previous years. Wickes can apply about $500 million in previous losses against future earnings. By increasing its earnings with an acquisition, Wickes can use up those “loss carry-forwards” more quickly. Because the higher earnings would be sheltered from taxes, the savings “can be used to pay our debt or reinvest,” Sigoloff said.
“I said we would not leave Chapter 11 as an economic cripple,” Sigoloff said. “My job is to do for shareholders what we did for the creditors. To do that job, we have to use up the NOL (net operating-loss carry-forward).”
He said Wickes is paying about a $200-million premium over the estimated $800-million to $830-million asset value of G&W;'s consumer and industrial products group.
Wickes already has available to it about half of the $1 billion needed for the acquisition. Proceeds from a recent offering of preferred stock and debt totaled $553 million. Wickes expects to finance the rest of the purchase with new offerings of stock and debt.
Sigoloff said the new stock offering will “probably” involve another $100 million of preferred shares and “roughly” $100 million in Wickes common stock. The rest of the purchase price will be financed with debt--through bank loans or a public offering or a combination of the two.
For G&W;, the sale to Wickes completes a major restructuring program begun in 1983 after the sudden heart-attack death of the company’s founder and chief executive, Charles G. Bluhdorn. G&W; was reorganized and its extensive stock portfolio was liquidated, with $900 million in proceeds used to reduce debt.
While G&W; divested a number of businesses, it also has spent $1 billion in the last 16 months on acquisitions that fit into its strategic plan. G&W; has concentrated its efforts in three areas: entertainment, publishing and financial services. Among G&W;'s longtime businesses are Simon & Schuster, Paramount Pictures and Madison Square Garden Corp.
Davis, G&W;'s chairman and chief executive, said in a statement that the companies being sold include “well-managed businesses” but that “their potential can be more fully realized by Wickes, whose strategic focus and resources are different from ours.”
G&W; plans to use proceeds from the sale to finance “new opportunities,” to retire debt and to repurchase its own stock “from time to time,” Davis said.
“We are committed to expansion of our activities in entertainment and communications where technological advances are generating many new opportunities in the production and distribution of motion pictures, over-the-air and cable-television programming and home video products,” Davis said.