Lands' End Goes It Alone

Sears Holdings spun off Lands' End today, although the new stock was greeted poorly by the market. In early trading, the price of Lands' End stock dropped about 7 percent, while Sears' stock increased about 1.5 percent. Sears had originally purchased Lands' End for about $2 billion in 2002. The move is designed to allow Sears to focus on its core operations. Before the split, Lands' End paid a dividend of $500 million to Sears and the hedge fund run by Eddie Lampert, CEO of Sears, will retain about 49 percent of the stock in Lands' End, about the same percentage it has in Sears Holdings. Although you know that diversification is not a good reason for a merger, the diversification benefit of this particular spin off may be even greater than normal. Sears lost about $1.4 billion last year and there is speculation that the company may be forced into bankruptcy. In the event that Sears does file bankruptcy, the assets of Lands' End will no longer be included in the assets of Sears Holdings.