SBJ/July 6-12, 1998/This Weeks News

Gart Sports ups ante with bid for Sports Authority

A company with sales of just $200 million in 1997 may end 1998 as the largest sports equipment retailer in the world, if shareholders of The Sports Authority (TSA) accept a merger bid from Denver-based Gart Sports Co.

Gart, which more than tripled its sales earlier this year when it completed a merger with Chicago-based Sportmart Inc., will grow by nearly fourfold if it persuades TSA shareholders to accept a merger bid.

On May 6, TSA and the Venator Group – the $6.6 billion parent of the Foot Locker chain – announced they had agreed to merge in a stock swap valued at over $700 million. But TSA shareholders have yet to approve that merger, and TSA has taken it on the chin on Wall Street since the announcement, losing about 20 percent of its market value. Venator shares also dipped.

Last week Gart offered to pay $20 in cash per share for 70 percent of the outstanding shares in TSA. The remaining 30 percent would be revalued to give TSA shareholders 51 percent ownership of the combined Gart/TSA entity.

In a letter to TSA’s chairman and board of directors, Gart said the bid offered TSA shareholders a 32.2 percent premium compared with the closing price of TSA’s common stock prior to Gart’s offer and a 23.8 percent premium over the Venator bid.

Wall Street gave an immediate cheer, as shares in Gart, TSA and even Venator all shot up once the offer was made public.

Venator now may increase the amount of its shares offered to TSA shareholders or replace its stock swap bid with a cash offer.

Venator also may quietly retreat, pleasing analysts and shareholders who weren’t sold on the merger to begin with.

Unlike Venator, Gart specializes in freestanding sporting goods ”superstores” that sell products in most recreational categories. If the Gart/TSA merger takes place, the combined entity would total approximately $2.5 billion in annual sales, about five times larger than its nearest competitor in the sporting goods superstore category.

The Los Angeles-based retail buyout specialist Leonard Green and Partners owns 61 percent of Gart shares and has promised to come up with most of the $445.2 million in cash needed to complete the merger.

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