Sears Is Hoping to Shed Its 50% Stake in Prodigy

Sears, Roebuck & Co. said Wednesday that it wants to shed its 50% stake in Prodigy Services Co., for which it has so far been unable to find a buyer.

Sears Chairman Arthur Martinez said publicly for the first time that Sears is considering several options for the lagging No. 3 online service. They include selling the stake to International Business Machines Corp., which owns the other half. Analysts said the stake would probably fetch between $100 million and $500 million.

Martinez also said Sears will consider spinning off its stake or shutting the service down. He declined to say if any buyers are on the horizon.

“We felt cash flow of the company [Sears] could best be invested in retail strategies,” Martinez said at an analysts meeting in New York. He said there is no timetable for the sale, although he wants to proceed “full speed ahead.”

Shares of Sears rose $1.125 to close at $43.25; IBM shares rose $1.125 to $120.25. Both trade on the New York Stock Exchange.

“Sears has been shopping Prodigy around,” said Bill Bluestein, analyst at Forrester Research Inc., a market researcher. “There are very real doubts in the marketplace about proprietary online services like Prodigy.”

Prodigy, created in a joint venture between Sears and IBM in 1984, helped build the online industry and now has 1.5 million subscribers.

But the company has been slow to adapt to user preferences and has been overtaken in the last two years by Vienna, Va.-based America Online Inc., which has 5 million subscribers, and Columbus, Ohio-based CompuServe Inc., which has 4.3 million.

Sears and IBM invested more than $1 billion in Prodigy over the last decade, only to see the service stumble because it was slow to adapt to competition.

Sears, based in the Chicago suburb of Hoffman Estates, needs to spend about $100 million a year to bring the service in line with competitors, analysts said.

“If you aren’t in an investment mode in this market, you won’t succeed,” said Mark Mooradian at Jupiter Communications, a New York-based market researcher.

Sears’ move prompted Armonk, N.Y.-based IBM to examine its own stake. IBM said Wednesday that it hadn’t reached a decision about Prodigy.

Prodigy spokesman Barry Kluger said a sale of Sears’ stake could bring a buyer with more cash to expand the online service.

“Sears’ decision to seek a buyer resolves a long-standing issue. For Prodigy, it presents a wide array of viable and exciting options, all designed to continue to grow and enhance the asset,” Kluger said.

Sears began reviewing its role in Prodigy in August, after Martinez took over as head of the retailer. It retained investment banker Goldman Sachs and last month said it would consider selling the stake.

Separately Wednesday, Sears said it plans to open as many as 350 stores this year and remodel up to 100, and it expects to show sales growth that will outstrip many rivals. It said it will boost capital spending to $1.6 billion this year from $1.4 billion in 1995 to help pay for opening 285 to 350 stores this year and the remodeling of 90 to 100 others.

Sears reportedly began attempting to sell its stake several months ago, either to IBM or another firm. After being rebuffed in its bid to recoup its estimated $600-million share of Prodigy’s start-up costs, it is now asking for about $300 million, said Peter Krasilovsky, senior analyst for Arlen Communications, a consulting firm for new media.

“Sears originally invested in Prodigy because they believed home shopping would be a tremendous driver, but that home shopping segment never really took off,” Krasilovsky said. “Their announcement today really was to tell shareholders Sears knows it has a dead fish on its hands and they’re going to dump it and never look back.”

Sears has been focusing on its “softer side” since Martinez came aboard in January 1993. The former Saks Fifth Avenue executive slashed 50,000 jobs, closed 113 stores, killed off its catalog and poured millions of dollars into renovating stores and providing higher-quality merchandise. The steps helped Sears post strong holiday-quarter earnings when other major retailers’ sales lagged.

Sears will invest proceeds from the Prodigy sale in its core retailing business, spokeswoman Jan Drummond said. She would not identify any potential buyers.