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Mobil Exploring Possible Sale of Montgomery Ward

January 21, 1988

CHICAGO (AP) _ Montgomery Ward & Co., the revitalized 115-year-old department store chain, may be put up for sale, its parent said Thursday, with potential transactions reportedly including a leveraged buyout by Ward’s senior management.

″A leveraged buyout would make sense,″ said Karen Sack, a retail analyst with Standard & Poor’s Corp. in New York. ″I think management obviously has proved themselves in turning the company around ... and refocusing their strategy as a special retailer.″

If they took over the company, ″I would think they would continue to do well,″ Ms. Sack said.

Mobil Corp., which bought Ward in 1976, confirmed late Wednesday that it had received inquiries about the possible sale of the 300-store chain, which is on the rise after years of decline.

In a statement released Thursday, Mobil said it ″has received a number of inquiries over the past months from potential investors regarding the possible purchase of Montgomery Ward as a going concern.

″Mobil has provided information to a number of these potential investors and is working with them to determine the extent of their interests. Montgomery Ward management has indicated it will cooperate ... and is also interested in becoming an investor in Montgomery Ward,″ the statement said.

The statement emphasized that the New York-based oil giant had not received any purchase offer ″and would not entertain a proposal until all interested parties″ have had time ″to examine information provided to them.″

Debbie Urso, a spokeswoman, said she could not comment beyond the statement.

Reports have surfaced that Ward Chairman Bernard Brennan and other company managers had submitted a bid for a leveraged buyout of the nation’s eighth largest general retailer, the New York Times said Thursday. The Times said the bid was estimated at more than $1 billion.

In a leveraged buyout, investors borrow heavily to buy out a company and then pay off the debt with the firm’s cash flow or the sale of assets.

Brennan was not available for comment, Ward spokesman Chuck Holland said Thursday. Holland said the retailer had no immediate comment on the reports of a possible sale or buyout.

It has long been thought that Mobil wanted to sell the Chicago-based department store chain, which has become attractive recently after having lost money in the early 1980s, said George Gaspar, an oil analyst with the Robert W. Baird investment firm in Milwaukee.

″The progress that Montgomery Ward has made in the last three years is outstanding,″ he said. ″This is the time to sell it.″

The sale would allow Mobil to concentrate its efforts on making an acquistion in the oil business, he said.

″We’re into a critical drawdown in domestic oil reserves,″ Gaspar said. ″The level of new discovery oil is considerably below the production rate and it’s affecting all companies, regardless of size.

″Being that the oil industry is Mobil’s main operational activity, I think that it must take some action to enhance its reserve development schedule,″ he said. ″The fastest way to do it is by acquisition.″

Selling Montgomery Ward’s ″would obviously put them in a better position financially″ to pursue an acquistion, Gaspar said.

Ward has restructured in the last few years, laying off employees, closing its Jefferson Ward discount stores and other unprofitable branches, and shutting down the catalog division that dated back to the company’s early days.

At the same time, it has moved into specialty retailing, opening freestanding appliance and electronics stores, and is converting its department stores to emphasize specialty formats including electronics, home furnishings and recreational items.

It also has begun opening joint stores with the highly successful Toys R Us chain.

The changes have paid off.

The retailer’s 1987 pretax earnings are estimated at $245 million on sales of about $4.2 billion, the Times said. In 1986, Ward earned $106 million, and in 1985, its profits were $42 million.

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