Inside Wall Street
U.S. SHOE AND NINE WEST: A '90S CINDERELLA STORY?
If the shoe fits, grab it. That's just what Nine West Group tried to do in August--buy the footwear operations of U.S. Shoe for $425 million. But the offer was rejected, to the consternation of some big U.S. Shoe shareholders who felt the bid should have been accepted. Now there's talk that Nine West, a major maker of women's shoes, will return. "We believe Nine West will come back with a restructured offer that will be more compelling to U.S. Shoe," says Todd Slater of UBS Securities.
If that happens, expect U.S. Shoe's stock, trading at 20 a share on the Big Board, to kick up. Investors figure that on the whole, the stock is undervalued and is worth $35 to $40 a share.
Nine West's original proposal called for a two-step deal: U.S. Shoe would spin off to shareholders full ownership of its apparel and optical units, which account for about three-quarters of its revenues. U.S. Shoe's footwear business, which Ladenburg Thalmann analyst Barry Bryant estimates is worth $475 million to $525 million, would then be merged with those of Nine West. Dissident shareholders have been pressuring management to split the company up to extract the full value of its assets.
CLEAR VISION? Analyst Bryant says U.S. Shoe's footwear unit would be an ideal match for Nine West's operations. U.S. Shoe produces and outsources shoes mainly in Asia and Europe. Nine West makes most of its shoes in Brazil, where it could produce certain brands of U.S. Shoe's products more efficiently and at much lower costs, notes Bryant.
Apart from U.S. Shoe's footwear division--401 stores accounting for 27% of sales last year--the company is also big in women's apparel, which generated 48% of revenues in 1993. In addition, the company makes and sells optical products through its LensCrafters unit, which generated 27% of sales.
The eyewear division has also attracted a possible buyer, says investment manager Mark Boyar, one of the shareholders backing a spin-off move. He notes that the founder and former owner of LensCrafter, Dean Butler, has expressed interest in buying back the optical company. Boyar puts its value at $715 million, or about $15 a share. "That's a most conservative valuation," says Boyar. Butler owns Vision Express in Britain, an optical-products retailer, notes Boyar.
"Ultimately, U.S. Shoe will go the way of Sears Roebuck, which resisted for a long time shareholders' demand that it sell or spin off assets to enhance shareholder value," says Boyar. Management doesn't own a big stake in the company, he adds, and that's "one reason why management has been slow to react to shareholder concerns."
Enhancement of U.S. Shoe's value, though, doesn't depend entirely on a deal. Jeff Stein of McDonald & Co. in Cleveland says the company is now turning around. Absent any spin-offs or asset sales, the stock could hit 30 in 12 to 18 months. Try that on for size.GENE G. MARCIAL