Los Angeles buyout firm Leonard Green & Partners said Monday that it would return to the sporting goods business by acquiring Sports Authority Inc. for about $1.3 billion.
An affiliate of Green's firm that includes some of Sports Authority's senior managers agreed to pay $37.25 a share, a 20% premium over Friday's closing stock price.
The agreement sent the company's shares up $5.65, or 18%, to $36.70.
"As a private company, Sports Authority will have greater flexibility to accomplish its long-term goals," Sports Authority Chief Executive Doug Morton said in a statement. "Leonard Green & Partners has an excellent track record of building value at its portfolio companies by providing strong financial and strategic support. Leonard Green & Partners also has significant experience in the sporting goods industry from its prior ownership of several sporting goods retailers."
Sports Authority, which reported a $33.5-million profit on revenue of $2.4 billion last year, has struggled since its 2003 merger with Gart Sports, missing earnings expectations for a series of quarters. Things seemed to be turning around in last year's third quarter when earnings beat the company's projection and analysts' estimates.
But the fourth quarter, results of which are to be reported in March, was probably tougher for the company, said financial analyst Sean McGowan of Harris Nesbitt in New York.
"The pattern at Gart was to buy a troubled retailer, make it into a Gart model and move on to the next one; in the Sports Authority, it took on a much bigger target with bigger problems," said McGowan, who rates the company "neutral."
"On the positive side, the company was making progress toward improving its margins and its cash flow, but it's an inherently slow growth business that is getting increasingly competitive, and my sense is that progress was possibly going to be choppy."
Green, the largest private investment firm in Southern California with $3.7 billion in capital, previously owned Big 5 Sporting Goods and Gart Sports. Green helped steer Gart into acquisitions of Sportmart in 1997 and Oshman's Sporting Goods in 2001.
In 2003, the then-75-year-old Gart combined with Sports Authority to form one of the nation's largest retailers in the sporting goods industry.
Green, which exited sports retailing in 2004, is known for buying mostly mid-size retail and consumer product companies. The firm has ownership stakes in Claim Jumper Restaurants, floral chain FTD Group Inc., mapmaker Rand McNally & Co. and drugstore chain Rite Aid Corp.
Based in Englewood, Colo., Sports Authority has 400 stores in 45 states, including 56 in California, under the Sports Authority, Gart Sports, Sportmart and Oshman's names.
Green's buyout of Sports Authority is expected to close in the second quarter of this year pending shareholder and regulatory approval.