There is a humorous story, believe it or not, about the auction proceedings for the assets of the former Just for Feet company a few years ago. When Footstar Inc. prevailed in the bidding process, someone asked Bob Tucker, founder and CEO of Shoe Show Inc., why he hadnt bid more for the Just for Feet stores and leases. His now possibly prophetic answer?
“I dont want to be the next guy here”, he said, referring to Just for Feets bankruptcy proceedings.
The Just for Feet stores appear to be the major anchor weighing down the Footstar Athletic business, which includes the Footaction, Just for Feet and fledgling Uprise nameplates, and has Footstar Inc. mulling the sale of the division as it looks for alternatives to free itself from the burdensome stores. Its almost like the ghost of Ruttenberg has come back to haunt anyone associated with the now infamous retail brand.
Footstar has apparently been shopping the Athletic division for awhile, with a price range reportedly in the $250 million to $350 million range. The Finish Line reportedly declined the assets last year, but should be one of the most likely candidates as they look for ways to more quickly strengthen their presence in the I-95 corridor and the Southeast from Florida to Texas, Footactions strongest performing region. Foot Locker is also rumored to be a contender, which may be a pure defensive play to keep the locations out of the hands of a strengthening competitor. FINL still has plenty of room to grow while FL has few malls left to pursue.
Others feel that any sale would go to the investor side, rather than a strategic play.
The Athletic division management team, which has already been lauded by one major investor, could stay intact if a financial angel comes along with the support needed to pull off a buyout.
One key investor, Robert L. Chapman, Jr. and his Chapman Capital LLC firm, who had filed a blustery letter two weeks ago with the Securities and Exchange Commission that he had sent to the Footstar board, made overtures to buy the entire company for $8.00 a share. He also called for the resignation of the companys board, the replacement of interim CEO Neele Stearns, and the firing of the companys auditor, KMPG. Last week, Chapman reduced his stake in the company from 7.1% to 3.2% even as one of his wishes came true. (See following story) Another investor, Sterling Capital Management LLC, recently sold its 11.9% stake.
Still, there is a school of thought that Nike is pulling for FINL to take Footaction to maintain — and expand — Nikes new strategic positioning in the mall. They would presumably prefer to see their broader marquee product presence in the Footaction stores converted to Finish Line, rather than have the stores fall into the hands of Foot Locker, where they could be closed or upset their new balance of distribution.
Footstar is apparently taking the potential sale of the unit quite seriously, announcing last week that they were working with financial advisor, Credit Suisse First Boston, to “explore strategic alternatives for its businesses”, including the “potential sale of its Athletic segment”.
The key for any sale will be the inclusion of the bad Just for Feet leases that could doom any potential sale. The JFF lease obligations are estimated to be in the $240 million range, according to a report from theDeal.com.
For that reason, there is still talk on the street that Chapter 11 is the best opportunity for the company to jettison the leases. The action would make the remaining assets very attractive and bring top dollar from suitors. The company would end up focused on its Meldisco business, which itself could be attractive to someone like Edward Lampert, the new chairman of Kmart, and his ESL Investments, which owns 50% of Kmart shares. As of June 30, 2003, the “ESL Reporting Group” also owned 13.1% of Footstar shares.
>>> The opportunity will be closely assessed by a number of parties, and each should keep those fateful words from Mr. Tucker in mind as they mull a potential acquisition of the unit…
In other major news at Footstar, the company announced that former Foot Locker chairman and CEO Dale Hilpert has been appointed chairman, president and CEO of Footstar, Inc., replacing Neele Stearns, Jr., acting chairman and interim CEO. Stearns has been appointed vice chairman of the Board of Directors. The new CEO was most recently CEO of Williams-Sonoma after five years at Foot Locker and 17 years at May Company, where he was chairman and CEO of its Payless ShoeSource division.
Hilpert is seen as more of an operations and finance guy, rather than a merchant. Industry watchers see the move as an effort to appease investors and the Street with a credible operational leader after the debacle of former chief executive Mickey Robinsons reign, when the CEO and the company was cited for sloppy processes and operational gaffs that led to much of the current issues that have stymied the company.
The question remains why anyone would take this position before the company has filed its restated financial results for 1997 and the first half of 2002 and its results for H2 2002 as well as each quarter of 2003.
With Hilpert at the helm, the company will move current CFO Steve Wilson to EVP and Chief Administrative Officer and leave the CFO position open for the foreseeable future. Richard Robbins, the recently-appointed SVP of Financial Reporting and Control, will now report directly to Hilpert.
>>> Hilpert must see a win somewhere here — or at least an endgame
