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TSA rejects Gart offer
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August 11, 1998: 12:49 p.m. ET
Sports Authority rebuffs 'strategic' merger, says investors aren't served
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NEW YORK (CNNfn) - The Sports Authority Inc. voted Monday to rebuff Gart Sports Co.'s proposal for a strategic business combination after concluding that the deal would do more harm than good for shareholders.
On July 2, Gart Sports proposed an alliance under which Gart would pay $20 a share for 70 percent of TSA's stock. Under the deal, Denver-based Gart would have paid $440 for 22.05 million TSA shares.
The rest of the shares would have remained outstanding, representing a 51 percent stake in the combined company, effectively making Gart a minority shareholder in the alliance.
At the time Gart made its overture, TSA, the world's largest sporting goods retailer and maker of Stairmaster fitness machines, already had agreed to merge with Venator Group, the former Woolworth Co., in a stock swap valued at about $580 million, plus the assumption of $179 million in debt. That deal remains subject to approval by Sports Authority shareholders.
In a statement Tuesday from its Fort Lauderdale, Fla., headquarters, TSA said the company's directors, "after an extensive analysis," had determined that the company's long-term interests wouldn't be served by the Gart proposal.
Were an alliance accepted, the statement said, "the resulting company would be highly leveraged with limited shareholders' equity, raising considerable legal and financial issues about the proposal, including concerns about the financing and the potential value of the remaining equity."
The deal could also create "potential operational and management issues for the combined company," the statement added, without elaborating.
Officials at Gart Sports could not immediately be reached for comment.
That is hardly how Gart portrayed the alliance back in early July, when it hoped to quash Venator's hopes of clinching TSA.
Gart, the nation's second-ranked sporting goods retailer with $700 million in revenues in 1997, cast itself as a more compatible partner for Sports Authority, an athletic-retailing titan with $1.46 billion in sales in its fiscal year ended in January 1998.
In a letter to his counterpart at TSA Jack Smith, Gart Sports's Chairman, President and Chief Executive Officer Douglas Morton wrote that he believed TSA's shareholders "would be better served by continuing to hold an ownership position in a pure-play sporting goods retailer rather than a retail conglomerate."
Morton opined that the combination would create "higher value" than the Venator offer, spawning a sporting goods superstore with about $2.5 billion in revenues.
TSA's merger agreement with Venator includes a significant caveat: TSA may walk away from the deal at any time if Venator's stock price fails to reach $20.50 during any of several measuring periods that end Dec. 31, 1998. Shares of Venator Group (Z) were well below that threshold Tuesday, slipping 1/8 to 13-1/16 on the New York Stock Exchange.
TSA Chairman and CEO Jack Smith was emphatic Tuesday that he is ready to reject any merger offer that fails to raise shareholder value.
"While we are hopeful that Venator's stock price reaches the $20.50 threshold, we are fully committed and prepared to operate our business on a stand-alone basis," Smith said.
TSA is expected to issue its quarterly earnings report at the close of business Tuesday.
Shares of TSA (TSA) were off 2-1/4 at 9-9/16 Tuesday, while Gart (GRTS) stock eased 1/18 to 13-1/16. 
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