FIN610 Case Study: Sears’ Spinoff of Lands’ End
Shane Van Dalsem, Washburn University
This case was prepared by the author and is intended to be used as a basis for class discussion. The views represented here are those of the author and do not necessarily reflect the views of the Society for Case Research.
Introduction
Following several years of declining revenues and profits, in late 2011 Sears Holding Inc. (“Sears”) began to hive off its business divisions. As part of its series of divestitures Sears announced its intention to spin off one of its clothing divisions, Lands’ End, in a stock distribution to the existing Sears’ shareholders on December 6th, 2013 (Sears Holding Corp., 2013b).
To explain why Sears was spinning off Lands’ End, along with Sears’ Auto Centers business, Sears released the following statement: We believe separating the management of these two businesses from Sears Holdings would allow them to pursue their own strategic opportunities, optimize their capital structures, attract talent, and allocate capital in a more focused
manner (Hammond, 2013).
With the spinoff Sears would receive a cash payment of $500 million dollars from Lands’ End
which would be funded from the proceeds of a $515 million term loan from Bank of America.
Each Sears shareholder received approximately 0.3 shares of Lands’ End stock for each share of
Sears stock that they owned and (Sears Holding Corp., 2014a). The spinoff of Lands’ End would
result in the same stockholders retaining their proportional ownership of the same basket of
assets.
In light of the terms of the spinoff the stockholders and other stakeholders of Sears and Lands’
End needed to evaluate their relationships with the firms. Should Lands’ End’s shareholders
keep their shares or sell them? What assets were transferred from Sears to Lands’ End as part of
the spinoff? Would the terms of the spinoff hurt the ability of Lands’ End to operate in the
future?
Background of Lands’ End
Lands’ End was a multi-channel retailer of apparel and home products. The firm’s channels of
distribution were: standalone stores, stores within Sears’ stores, internet, phone, and catalogs.
Lands’ End had operations in the US, Europe, and Asia. The firm was founded by Gary C.
Comer in 1963 as a catalog retailer selling sailboat hardware and equipment. In 1977, Lands’
http://www.sfcrjcs.org/
Journal of Case Studies Nov. 2018, Vol. 36, No. 2, p. 144-162 www.sfcrjcs.org ISSN 2162-3171
Page 145
End began to focus its operations on clothing and luggage. In 1978, Lands’ End moved its
operations to Dodgeville, WI. The firm went public in 1986 and began its international
operations in 1991. Through the late 1990s, Lands’ End launched its website and developed
innovative methods to improve the customer experience such as tools that allowed customers to
create 3-D models of themselves and create custom pants.
Sears, Roebuck & Company Acquires Lands’ End
Sears, Roebuck & Co. (“SRC”) acquired Lands’ End for approximately $1.9 billion in cash in
2002. At the time of the announcement of the acquisition, the amount provided Lands’ End’s
shareholders with a 21.5% premium over the existing market value of the stock. The acquisition
provided Lands’ End the potential to grow their in-store retail sales by providing 870 new stores
for their products. For SRC, the acquisition provided the opportunity to improve the brand
image of its apparel and make the brand recognition for apparel more consistent with that of
SRC’s hardline categories (e.g. Craftsman, Diehard, and Kenmore) (CNNMoney, 2012).
Ultimately, SRC’s goal with the acquisition was to improve its waning sales and improve profit
margins in softlines by offering higher quality apparel with existing brand recognition.
K-Mart Acquires Sears, Roebuck & Co.