Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus,americast.usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Wed, Sep 30 1992 Date: Wed, 30 Sep 92 04:52:36 EDT Message-ID: 09-30 0000 BONUS: Sears caps off restructuring USA TODAY Update Sept. 30, 1992 Source: USA TODAY:Gannett National Information Network Change has come to Sears, Roebuck - a company so large and so entrenched that it has been compared with the federal government and the Queen Elizabeth II. Chairman Edward Brennan said Tuesday that Sears will spin off or sell most every non-retail division of the company. Being spun off to current shareholders and other investors: Dean Witter Financial Services Group and 20% of Allstate Insurance. For sale: Coldwell Banker Real Estate Group. Remaining in the Sears family: domestic retail stores, catalog and credit operations of Sears Merchandise Group, 61% of Sears Canada, 75% of Sears Mexico, 80% of Allstate and Homart Development. WHY IS SEARS MAKING THE MOVE? The move is designed to quiet shareholder complaints and reduce debt. "The success of our financial-services strategy is widely recognized," says Brennan. "This is the right time to release some of that value to the shareholder." That represents a tremendous change of heart by Brennan, a career Sears man who just five months ago at the annual meeting promised that Sears would remain whole. Brennan says he changed his mind. Sears watchers say he had a lot of help doing so. WHAT MADE BRENNAN CHANGE HIS MIND? Brennan clearly has been under pressure to change a career's worth of thinking - from guardian of the status quo to shareholder advocate. Shareholder outcry, increasingly frequent meetings with Sears directors, negative press and criticism by Wall Street analysts combined to propel him into a 180-degree turn, they say. WHEN DID THIS START BREWING? Shareholder activism at Sears started in earnest at its annual meeting in Atlanta in May. Five anti-management shareholder proposals collected a surprisingly large percentage of votes. A 10% vote would have been substantial. A proposal protecting confidentiality of voters received 41%, as did one to force annual election of directors. A proposal to separate the posts of chairman and chief executive - held by Brennan since 1986 - received 27%. And a proposal to spin off Allstate, Dean Witter and Coldwell Banker drew 23% in support. WERE THE SHAREHOLDERS ASKING TOO MUCH? "These were not lunatics," says Robert Monks, longtime Sears critic and head of LENS, a shareholder-activist organization. "These were not unbalanced people presenting these shareholder proposals. These were serious people with specific proposals for the company." Though the resolutions didn't pass, Brennan and the other eight Sears directors clearly heard the discontent. "They must have been thinking, `If 41% don't like the way we elect board members, could be next year a lot more will just want new board members,' " says Monks. HOW WERE BOARD MEMBERS AFFECTED? After the shareholders went home, board members continued to press for change. Sears director Edgar Stern Jr. says the board has met several times since the May shareholder's meeting to explore restructuring and other proposals to boost shareholder equity. Stern declined to discuss specifics, but says the board examined more than a dozen scenarios, including proposals that the board do nothing or make fewer spinoffs of subsidiaries. HOW DID THE PLAN COME ABOUT? The plan announced Tuesday was approved after a final six-hour directors meeting that ended Monday afternoon. "This plan seemed to be the right compromise - it seemed to fit all of the problems we wanted to solve," says Stern. Stern says Brennan didn't have to be pushed. Other directors say Brennan was receptive to proposals to make changes and that he was open to suggestions from the board, senior managers and investment adviser Goldman Sachs. Morgan Stanley was hired for a second opinion. WHAT ELSE HAS PESTERED SEARS? While all the restructuring talk was going on, other controversies dogged the company. Charges of fraud at Sears Auto repair shops emerged in California, Florida and New Jersey. California state insurance commissioner John Garamendi accused Allstate Insurance of failing to promptly process claims made by victims of the Oakland fires last year. Shareholder proposals once denounced by management began to pass. Rules on voter confidentiality were adopted. HOW DID THE COMPANY TIGHTEN UP? Brennan stepped down as head of merchandising, while staying on as chief of the company. The new head of the retail group, Arthur Martinez, became the target of a lawsuit by another retailer that had hoped to hire him. "You could see the recurring theme - that the company needed to tighten up," says Monks. WHAT RESULTED FROM THE CHANGES? Shareholders celebrated. Sears stock jumped 3 3:8 to $44 3:4 on the news. Sears was the most actively traded stock Tuesday on the New York Stock Exchange. "This is a bonanza for the shareholders," says Kurt Barnard, president of Barnard's Retail Marketing Group. Tuesday's price jump shows just how badly the merchandising group has affected Sears' stock price, says Karen Sack, retail analyst for Standard and Poor's. WILL SEARS SURVIVE THE RESTRUCTURING? Sears, the retailer, will be better off on its own than part of a huge conglomerate, analysts say. Though analysts joke that the merchandising group is the only division Sears couldn't sell, most agree the restructuring will benefit the retail business. The sales and spinoffs clean up Sears' balance sheet and allow it to unload debt, says Janet Mangano, Burnham Securities. Sears will make early payment of $3 billion in Sears corporate debt. That move will save it hundreds of millions a year in interest payments - though analysts haven't figured out how much yet. HOW ELSE WILL SEARS BENEFIT? The company also will unload responsibility for about $17 billion debt from Dean Witter and Coldwell Banker. Although Sears' retailing operations generate plenty of cash, and the company is in no danger of collapse, it has been losing customers fast to rivals such as Wal-Mart and growing appliance chains. DO ANALYSTS AGREE ON SEARS' FUTURE? Moody's Investors Service, a Wall Street credit-rating agency, warned that the changes could hurt Sears by limiting the flexibility and diversity of its income sources. But rival Standard & Poor's affirmed its A-rating on the company's debt. Now Sears management can focus on this turnaround, without other business distractions, says Monks. WHY WAS A DRASTIC MOVE NECESSARY? Sears, in particular Brennan, has lost a lot of credibility in recent years. "There have been a lot of `big announcements' from that company in the last few years," says Sack. "Everything was hyped - their store of the future, their new everyday low pricing. Meanwhile, every other retailer was eating their lunch." Analysts say a big move is in order, to show shareholders and shoppers alike that Sears recognizes the problems are more than superficial. Bonus Editor: Kate Coughlin. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM