Grace to Sell Retailing Unit, Buy Back 26% of Its Common Shares
W. R. Grace & Co. said Tuesday that it plans a restructuring that will begin with an effort to sell its $2-billion retailing division. The New York-based conglomerate also announced an agreement with Deutsche Bank to repurchase 13.6 million shares of its common stock, a 26% stake, for $595.9 million.
A Grace spokesman denied that the moves are intended to help ward off a hostile takeover. The company said the restructuring will let it concentrate on such businesses as its specialty chemicals operation.
To buy back its shares, Grace will pay $43.75 per share, the closing price of Grace stock on Dec. 5. The stock closed at $47 on Tuesday, up $1.875, in trading on the New York Stock Exchange.
Although Deutsche Bank, West Germany’s largest commercial bank, does not yet own the Grace stock, it is expected to acquire the shares as part of its agreement to buy the Flick industrial empire of West Germany. Flick first began buying Grace stock in 1976.
Grace said the agreement allows it to assign its rights to the stock to a third party. Assigning rights to another party would reduce Grace’s cost of buying the shares and could put some of the stock into friendly hands.
Alternatives Assessed
However, J. Peter Grace, chairman and chief executive, said in a prepared statement that the conglomerate is evaluating several ways to finance the transaction, including issuing stock.
Grace previously considered selling its 660-store retailing group and had held discussions with an unnamed potential buyer, but Deutsche Bank’s decision to sell its Grace stake accelerated the process, the Grace spokesman said. He explained that the proceeds of the sale of the retailing unit could be used to repurchase the company’s stock. The company would consider selling pieces of the retailing group to various buyers, the spokesman said.
In his statement, Grace said the company is “examining several restructuring alternatives,” calling the sale of the retail group “a first step.” The Grace spokesman declined to elaborate on what else the company is considering.
“We had talked about redeploying our assets and concentrating on our other businesses,” primarily specialty chemicals, he said. Grace also has energy businesses and operates several restaurant chains.
Home Products Emphasis
Grace’s retailing group, which operates throughout much of the nation, is dominated by home products stores. The company has about 70 stores in California, which are called Ole’s in the south and Orchard Supply Hardware in the north. Elsewhere, the stores operate under such names as Handy Dan, Handy City, Channel and Angels.
The group also includes a specialty retailer called Sheplers, which sells Western and leisure apparel, and J. B. Robinson Jewelers. In addition, Grace owns 54% of Herman’s Sporting Goods.
For the 12 months ended Sept. 30, Grace’s retailing group had sales of $2 billion, or 28% of Grace’s total sales of $7.1 billion.
In 1984, the retailing group provided nearly 27% of Grace’s total sales but only 10% of the company’s after-tax operating income. In comparison, specialty chemicals and agricultural products accounted for 42.3% of sales and 65% of after-tax operating income.
Most of Grace’s businesses have suffered this year. The retailing group was hurt by heavy competition and discounting in some parts of the country.
In addition, soft prices have hurt the agricultural and chemicals operations. For the nine months ended Sept. 30, Grace’s profits fell 27.8% to $102.2 million and its sales fell 5.15% to $5.3 billion.
