U.S. parent makes bid for the rest of Sears

Firm sees advantage in total control Analysts see closings, real estate sales

The U. S.- based parent company of Sears Canada Inc. has offered to pay $ 835.4 million for all of the outstanding shares of its Canadian subsidiary that it doesn’t already own, a move analysts said might presage store closures and the sale of some Sears Canada real estate holdings.

Sears Holdings Corp., which owns 54 per cent of Sears Canada, said yesterday that it would pay $ 16.86 a share for the remaining stake. That would represent a premium of 8.7 per cent above the stock’s Dec. 2 closing price, after adjusting for an $ 18.64 dividend from the sale of the unit’s credit- card business.

Sears Holdings’ offer comes as the Canadian unit is struggling amid growing competition from the likes of Wal- Mart Stores Inc. and Home Depot Inc. In October, Sears Canada reported its first quarterly loss in more than three years partly on severance costs to dismissed employees.

“ On a stand- alone basis, Sears Canada’s retail business faces an increasingly competitive retail environment in Canada, and the principal factor that will determine the value of this business is the prospects for its retail operations,” Sears Holdings vice- chairman Alan Lacy said.

Sears Holdings spokesman Chris Brathwaite said the parent firm would save money if its bid succeeds because Sears Canada would no longer face reporting requirements as a separate public company.

Sears Holdings said it already has entered into a “lock-up agreement” with one of Sears Canada’s largest shareholders. Natcan Investment Management Inc., owner of a 9.1 per cent stake in Sears Canada, has agreed to sell Sears Holdings its 9.7 million common shares.

Several retail analysts said yesterday that purchasing the rest of the shares of Sears Canada would allow Sears Holdings to simplify its corporate structure.

“ There are too many department stores in Canada,” Gavin Graham, director of investments at Toronto- based Guard-

ian Group of Funds, told Bloomberg News. “It simplifies the corporate structure so ( chairman Edward Lampert) doesn’t have to worry about minority shareholders. If he wants to start selling real estate and leasing back stores, he can do that and get some cash back. It gives him complete control.” Gary Balter, a New York- based retail analyst at Credit Suisse First Boston, told clients yesterday Sears Canada “ may have underlying real estate value that has not been recognized.”

Sears Holdings’ offer also comes as Canada’s biggest departmentchain, Hudson’s Bay Co., is being pursued by U. S. investor Jerry Zucker, who has offered $832 million for the 81 per cent of the shares he doesn’t already own.

Buying all of the Sears Canada shares it doesn’t already own would also help Sears Holdings prevent Zucker from bidding for the shares if he were successful in his acquisition of HBC. CIBC World Markets analyst Perry Caicco has told clients that if Zucker bought HBC “ he would almost surely have to consider a bid for Sears Canada retail.” Speculation has swirled around Sears Canada’s future for months.

In February, Caicco wrote that the company’s U. S. parent company would pay $25 a share for the 46 per cent of Sears Canada that it doesn’t own, although that accounted for the value of the company’s credit- card operation, which it has since sold off.

Lacy said the company’s Canadian business “ will have a much greater opportunity to succeed with the benefits that will come with 100 per cent ownership.”

Sears Canada, which has 430 stores and 2,100 pickup locations for catalogue purchases, said an independent committee will review the proposal and make a recommendation to its board.

Sears Holdings’ offer comes two years after Lampert helped to bring Kmart Corp. out of bankruptcy protection. This year he spearheaded its merger with Sears to build the largest U. S. department store chain. He has pared costs, introduced more coveted private- label brands and taken control of marketing, merchandising, design and the Internet business.