Sports Authority Inc. and Gart Sports Co., the nation's two largest independent sporting goods retailers, said Thursday that they agreed to merge to better compete against giant retailers such as Wal-Mart Stores Inc.
The longtime rivals said that a merger would give the combined firm 3% of the $75 billion in annual sales of sporting goods, allowing it to negotiate more favorable prices from wholesalers.
A merger "makes a lot of sense," said Anthony Lebiedzinski, an analyst at research firm Sidoti & Co.
The new firm would have 385 stores in 45 states and annual sales of about $2.5 billion.
With the stock prices of both Sports Authority and Gart more than cut in half since mid-2002, the deal could help protect the investment of Los Angeles-based buyout firm Leonard Green Partners, which owns 25% of Gart, worth about $50 million.
Green bought Gart in 1992 and helped engineer the firm's mergers with former rivals Sportmart (in 1997) and Oshman's Sporting Goods (in 2001).
Green has agreed to vote for the merger, Gart and Sports Authority said.
The two firms called the deal a "merger of equals," with shareholders of each company owning 50% of the combined entity.
Sports Authority stockholders would receive 0.37 share of Gart stock for each of their shares. The new firm would take the Sports Authority name but would be headquartered in Englewood, Colo., where Gart is based.
Martin Hanaka, chairman and chief executive of Fort Lauderdale, Fla.-based Sports Authority, would be chairman of the combined company. John Douglas Morton, CEO of Gart, would become vice chairman and CEO.
Investors reacted positively Thursday, pushing Gart stock up $1.54 to $16.48 on Nasdaq and Sports Authority shares up 63 cents to $6.14 on the New York Stock Exchange.
The deal terms valued Sports Authority at $6.10 a share based on Gart's closing stock price, so it is possible that some investors are betting that Sports Authority could attract a higher bid from another firm.
Most of Sports Authority's 205 stores are in the East; most of Gart's 180 stores are in the West. Gart stores eventually would take the Sports Authority name, said George Mihalko, chief financial officer of Sports Authority. The company would close few stores and cut only a small number of jobs, he said.
Executives said they expected synergies resulting from the merger to add to earnings per share in 2004 and beyond, but they did not spell out details.
Gart made a takeover bid for Sports Authority in 1998, but the offer was rejected as insufficient.
Since then, both firms have struggled to compete with bigger retailers. Gart shares have plunged from $38 last summer; Sports Authority shares peaked last year at nearly $15.