Pier 1 Gets Advice on Unsolicited Bid

Pier 1 Imports, a chain of specialty retail stores that is 50%-owned by La Jolla-based Intermark, has retained Drexel Burnham Lambert for financial advice after an unsolicited offer to buy the publicly traded company.

Drexel will “explore the opportunities available to Pier 1 and its shareholders,” Frank Alexander, Intermark’s executive vice president, said Tuesday. Intermark has “an idea of what Pier 1 is worth, and its intrinsic value is a lot more than what it’s trading for now.”

Alexander declined to name the interested party.

Pier 1, a Fort Worth-based home furnishings and decorations chain with 350 retail outlets in 37 states and three Canadian provinces, closed up $1.625 at $10.375 Tuesday. It reported $24.9 million in operating income and $262.3 million in revenue for the fiscal year that ended Feb. 28.

Alexander said Intermark probably will demand at least $15 a share--the retail chain’s trading high during the past year--for Pier 1. At that price, Intermark would receive $190 million for its Pier 1 holdings, netting a $144-million gain before taxes. Intermark first acquired a controlling interest in the chain in 1983.

Dominant in Its Niche

Pier 1 is the dominant retailer in the “niche market that it serves,” according to Ron Rotter, a Los Angeles-based retail industry analyst with Morgan, Olmstead, Kennedy & Gardner.

Alexander said Intermark would be “very comfortable selling . . . if the purchaser offers a price that’s consistent with our view. There’s a very strong demand for successful companies right now.”

The possible sale became the latest in a flurry of activity at Intermark and its 41%-owned Triton Group subsidiary. Intermark, a mini-conglomerate with interests in nine widely diverse companies, closed up $1.375 at $11 Tuesday.

Triton in February completed the $117.5-million sale of its wholly owned, New York-based Simplicity Patterns subsidiary to an investor group controlled by Wesray Capital Corp., a New York investment firm. Triton recognized a $40-million gain on the sale.

Bids for Subsidiary

Triton recently hired Drexel to provide financial advice after receiving several bids for its wholly owned Continental Graphics subsidiary. Intermark recently sold several of its printing operations to Continental. The restructured company would have reported $20.4 million in operating income and $234.9 million in revenue had it existed for all of the year ended Jan. 31, 1987.

A Pier 1 sale would be “in keeping with Intermark’s business strategy,” according to Irving Katz, director of research for Thomas Green/San Diego Securities.

“Intermark has no operating earnings, so the only value is in the increased value of their so-called partner companies,” Katz said. “Intermark wants to grow the assets, like a miniature Henley Corp., and Triton, their newest investment, is a miniature Intermark.”

Intermark’s strategy is to “take a position in a company and to try to enhance its value to our shareholders,” Alexander said. “We then sell our position and start over again, so a sale (of Pier 1) would be consistent with our strategy.”

Intermark and Triton would have “a lot of cash” in hand should the Pier 1 and Continental Graphics sales occur, Alexander said.

‘Crown Jewel of Intermark’

“Pier 1 is the crown jewel of Intermark right now,” according to one industry analyst. “So getting a good price will affect the valuation of Intermark.”

Intermark, which reported $3.3 million in net income and $512 million in revenue for the year ended March 31, 1987, hopes to use cash received from transactions to finance acquisitions.

But the company has been frustrated during a continuing search for a new acquisition. Consequently, it could be forced to invest its cash because “it’s been more of a seller’s market than a buyer’s market,” Alexander said. “But we don’t think that being liquid right now is necessarily bad.”

Besides Pier 1 and Triton, Intermark owns parts of two real estate companies, several nursery chains and a handful of manufacturing companies. The Simplicity Pattern sale left Triton with three diverse businesses that will generate about $30 million in annual operating income and $400 million in annual revenue.