pounds 395m Freemans sale fails to boost Sears

Liam Strong, the beleaguered Sears chief executive, moved to placate disillusioned investors yesterday when he announced the sale of the group's Freemans mail-order business to Littlewoods for pounds 395m. He also promised to use the proceeds to return pounds 410m to shareholders in six months time in the form of a special dividend or share buy-back.

However, the move failed to impress the stock market where Sears shares remained unchanged at 88p. The sale price was below market expectations and analysts still predicted that Mr Strong would be replaced and that Sears was a candidate for break-up. "Sears will have pounds 400m sitting in the bank in the short term during which they will be extremely vulnerable to a bid," said Nick Bubb at MeesPierson. "There won't be a long term."

The Freemans deal will see Sears take a pounds 220m goodwill write-off which will force the group into a pounds 165m loss in the current year. It will be the second substantial loss in consecutive years.

If the deal receives approval from shareholders it will signal the first move in a long awaited shake-up of Britain's sleepy pounds 5.5bn agency mail- order industry.

It is the most significant acquisition in Littlewoods' 70-year history and will make the privately owned group a powerful rival to market leader Great Universal Stores with an almost identical share of 24 per cent.

The integration of the two businesses is likely to see hundreds of job losses at Freemans locations, which include a London head office, a warehouse in Peterborough and call centres in Sheffield and Orpington. Freemans has 3,000 staff compared with 10,000 at Littlewoods home shopping.

Littlewoods would not be drawn on possible redundancies but said it hoped to make annual cost savings of pounds 25m after three years on distribution, sourcing and marketing.

Littlewoods is funding the deal largely through new banking facilities. Though gearing will be around 58 per cent, corporate strategy director Chris Baker said the group was not financially stretched and could afford other deals.

Freemans made trading profits last year of pounds 38m but this year's profits are expected to be substantially lower.

Littlewoods said it would retain the Freemans brand name and build up its direct sales business. It is not taking The Source, a high street housewares format which was part of the Freemans group. Sears will now either seek a buyer for the stores, or a joint-venture partner.

The move signals a more aggressive approach by Littlewoods under new chief executive James Ross, who joined from Cable & Wireless last year. Earlier this week Bob Willett resigned as managing director of the stores division and Littlewoods said it was halting the stores' expansion plan to concentrate on mail order. The new head of the store division is Mike Wynne, who used to run Littlewoods' international division.

A Christmas trading statement from Littlewoods yesterday revealed that the high street stores were the weakest performer with like-for-like sales up by just 3.4 per cent. The Index catalogue shops recorded a 6.6 per cent gain. Sales at the home shopping division were up by12.6 per cent.

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