FRAMINGHAM, Mass. -- Zayre Corp. has agreed to sell its financially troubled discount department store division to Ames Department stores for $800 million, Zayre officials announced Thursday.
The multi-structured deal could diminish Zayre's attractiveness as a takeover target, analysts suggested.
Signs that a deal was imminent surfaced Wednesday, as Zayre stock inched up in heavy Wall Street trading. Zayre was the second most active issue traded Thursday on the New York Stock Exchange, closing up $2 to $25 on a volume of 9.7 million shares.
Zayre's department store operation in 26 states was the largest and weakest of the company's divisions, losing close to $70 million during the first two quarters of 1988. To improve performance and cut costs, the company elminated 310 department store jobs following a dismal first quarter.
The Framingham-based retailer will receive about $440 million in cash before expenses and a $200 million note to be refinanced after the closing. Zayre will also receive 8 million shares of Ames preferred stock valued at $25 per share.
The stock option means Zayre is the largest Ames shareholder, with a 17.6 percent equity stake in the company. The sale is expected to be consumated within the next 45 days, pending completion of Ames financing. Ames is based in Rocky Hill, Conn.
After paying $250 million in short-term debt, Zayre said the a substantial portion of the balance will benefit stockholders. One plan may include a stock buy-back effort, the company said.
The sale did not surprise retail analysts who essentially said the 370-unit department store business was doomed.
'This has been expected for some time,' said Monroe Greenstein, an analyst with Bear Stearns in New York. 'They sustained huge losses.' He listed a number of reasons for the decline including lack of competitiveness, too many staff cutbacks and poor store appearance.
'They did this for a couple of reasons,' said David Williamson, an analyst with Advest in Hartford. 'One was that shareholders and Wall Street were on their backs to do something about discount store division. So they got rid of it.'
Other analysts said the transaction was part of a Zayre restructuring plan to increase the value of the company to fend off any takeover ideas. The value of Zayre stock has dropped more than $10 since the October 1987 stock market crash and has been considered a takeover target since.
Leading Zayre takeover candidates have been Edward DeBartolo of Youngstown, Ohio, and Herbert Haft of Landover, Md., chairman of the Dart Group. Dart attempted to takeover Boston-based Stop & Shop last year.
Williamson said the transaction was a plus for the company and 'takes a lot of the takeover play out' of Zayre.
'It has to make management feel good,' he said.
And management said it was happy.
'We are pleased to be able to enhance the value of our shares through the redeployment of our assets...,' said Maurice Segall, Zayre chairman and chief executive officer. 'This is a transaction from which both parties will benefit significantly.'
Following the sale, Zayre will own and operate the retail stores T.J. Maxx, Hit or Miss and Chadwicks of Boston.