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Mobil Exploring Possible Sale of Montgomery Ward

January 22, 1988

CHICAGO (AP) _ Montgomery Ward & Co. President Bernard F. Brennan is among chief bidders seeking a leveraged buyout of the department store chain from its parent, Mobil Corp., published reports say.

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

An investor group led by Brennan is a leading contender in the bidding for the retailer, the Chicago Tribune said in today’s editions. The Chicago Sun- Times said Brennan had submitted a bid for the chain. Both newspapers quoted sources they did not name.

″Whatever happens, Bernie will be in the center of it, whether he puts together an investor group or someone comes in,″ said Norm McMillan, a retail planning consultant and former head of planning for Montgomery Ward. ″I don’t think any buyer would want it without him.″

Mobil issued a statement Thursday denying that a bid had been made, but adding that Montgomery Ward executives are among several potential investors in the department store chain which may be put up for sale.

In the statement, 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.″

The statement said Mobil is working with and has given information to ″a number″ of potential investors.

″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 ″would not entertain a (buyout) proposal until all interested parties″ have had time ″to examine information provided to them.″

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

The New York Times reported in its Thursday editions that Brennan and other company managers had submitted a bid for a leveraged buyout of the nation’s eighth-largest general retailer. 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 company’s cash flow or the sale of its assets.

Brennan was not available for comment, Montgomery Ward spokesman Chuck Holland said Thursday, and the company had no immediate comment.

″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.″

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

″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 acquisition in the oil business, he said.

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

Selling Montgomery Ward ″would obviously put (Mobil) in a better position financially″ to pursue an acquisition, Gaspar said.

Montgomery 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.

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

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