Sears Announces Plan to Spin off Allstate Corp. Ownership
CHICAGO (AP) _ Sears, Roebuck and Co. today announced it will spin off its ownership of the Allstate Corp. insurance subsidiary in a public offering to holders of Sears common stock.
Sears Chairman and Chief Executive Officer Edward A. Brennan, 60, used the spin-off announcement to disclose his intention to retire after the corporate realignment is accomplished.
Brennan said he has recommended that Sears’ board of directors elect Arthur C. Martinez, 55, as his successor at the end of the transition period. Martinez is currently chairman and chief executive officer of the Sears Merchandise Group. As previously announced, Jerry Choate, 55, will become chairman and chief executive officer of Allstate.
″It’s the right time,″ Brennan said in a telephone interview. ″We look at a very strong balance sheet in both companies, we look at great operating performance and probably most importantly, the outlook is very positive.″
Wall Street welcomed the Sears news, bidding up the retailer’s stock by $3 a share to $52.
The sale by Sears, which currently owns 80.1 percent of Allstate, would continue the merchandising company’s strategy of dismantling its multi- industry structure to focus on its core retail operations.
Joseph Ronning, an industry analyst with Brown Brothers Harriman Inc. in New York, called the move highly positive, especially for Sears.
″It is a recognition of the dramatic improvements that have taken place in the Merchandise Group in the past two years under Arthur Martinez,″ Ronning said. ″Martinez has shown that the Merchandise Group can stand alone.″
″The parts are probably worth more than the whole,″ said Ronning about the probable stock market impact of the spinoff.
He noted that when Sears’ merchandising encountered problems, Allstate helped buoy the parent company’s stock price, but the costs to Allstate of recent disasters - notably Hurricane Andrew and the California earthquakes - have scared some investors away from Sears.
″Certainly Hurricane Andrew and the earthquake have been a drain, but that’s the insurance business and once in a while you’re going to get a big hit like that,″ Brennan said. ″But the fundamentals of Allstate, the operating earnings, ex the earthquake and the hurricane are just excellent.″
Sears officials said the distribution of the 360 million Allstate shares, currently valued at about $9 billion, would be one of the largest spin-offs in U.S. business history. They said Sears common shareholders would receive almost one share of Allstate stock for each Sears share.
The decision by Sears’ board of directors was announced by Brennan, who said he personally recommended the action to the board.
″Sears and Allstate are ready, and the economic environment is right, for these successful American franchises to operate as independent companies,″ Brennan said in a statement.
The move will be considered at a spring shareholders meeting and is expected to be implemented by mid 1995.
Beside the shareholder approval, which is expected, Sears officials said the spinoff also is contingent on approval of its tax-free nature, market conditions and regulatory approval.
Thomas Tashjian, an analyst for the First Manhattan Co. in New York, praised Brennan’s timing of the move.
″Brennan has agreed with what the shareholders wanted several years ago, but by doing things slowly and deliberately, he has made sure that both companies can now stand on their own,″ Tashjian said. ″The key catalyst, of course, is what Martinez has accomplished at the Merchandise Group. When he takes over now, Arthur will be in a position of more flexibility to take aggressive action.″