Land Ho! Sears Set To Spinoff Land’s End In Early April

After following the space for a few years, you start to notice a few companies which are best described as ‘serial spinners’. These companies have a rich history of spinoffs and some have even passed that tradition on to their kids leading to a few ‘grandchildren’. It would be interesting to come up with a ‘Spinoff Power Rankings’ list, but I would guess that one of the leading contenders for the top spot would be Sears Holdings (SHLD). Since the launch of this site in 2010, Sears has executed three, yes three, different spinoffs! Of course, not all have done so well, but…details, details. Looking to cement its spot on the leaderboard, Sears has decided to add one more spin to the list by separating retailer Land’s End next month.

The Inelegant Investor nicely covered the troubled history of Land’s End and Sears when rumors of a spinoff first emerged. Since then, a host of new information has been released, including the Form 10 filing. A quick glance at the historical financials (’08-’12) reveals a trend of declining EBITDA and Net margins. In 2012, Land’s End generated most of its sales (~82%) via e-commerce or direct mail, with the rest coming from retail locations (mostly within Sears stores). Online sales were especially critical in the US where they accounted for ~80% of its U.S. consumer revenue. Preliminary 2013 numbers seem to show some nice improvement, but whether or not those gains are sustainable is a key question.

The filing listed the usual boilerplate rationale for pursuing the spinoff, but there were some interesting tidbits in the capitalization section. In addition to securing an ABL facility for working capital of up to $175m, the company will take on an additional ~$500m of debt in order to pay a fat dividend to the parent company. Paging Henry Waxman. The new company will also start paying lease payments to Sears for outlet space.

Leadership will remain stable at Land’s End with Edgar Huber, CEO & President of the unit since 2011, remaining as top dog. With anything Sears related, it’s always worth noting that Eddie Lampert will continue to exert significant control over the company due to his fund’s sizable ownership stake of SHLD shares (and hence the spinoff shares). For some more specific numbers, ESL owns ~49% of the company’s shares although there are some other large shareholders such as Bruce Berkowitz’s Fairholme Capital which owns ~21% of the company.

The distribution will take place on April 4th to shareholders of record at the close on March 24th. The first ‘regular-way’ trading day will be April 7th, although a ‘When Issued’ market will exist beforehand. The new company is expected to trade under the ticker ‘LE’ and SHLD shareholders will receive 0.300795 (that’s right – 6 decimal points!) shares of Land’s End for every one share of SHLD owned. This Forbes piece has a nice writeup of the situation and even includes a standalone valuation of the company.

Sears may be diminishing, but it is certainly multiplying the content on this site. Hope it can stick around and keep it up!

Disclosure: Author holds no position in any stock mentioned.