M & A Roundup: Levitz, Seaman Seek Strength From Weakness

Levitz Furniture Inc. and Seaman Furniture Co. agreed to join forces in an unusual merger-type arrangement to bring Levitz out of bankruptcy. Although initially an exercise in financial engineering, the alliance could have significant strategic implications for the furniture retailing industry. Under the proposed structure, a new holding company, Levitz Home Furnishing Inc., would be created to own all of Levitz, which presently is publicly traded over the counter, and a majority of privately owned Seaman. Resurgence Asset Management LLC and affiliates would become the largest shareholders of the holding company in return for the claims they hold in the Levitz case and their majority interest in Seaman. Operationally, the plan, which the companies called a “management agreement and a shared services agreement” envisages keeping the two organizations, with a combined 115 stores, separate – with Levitz concentrating on western states and Seaman the East. Seaman would manage its own 51 stores in Connecticut, New Jersey, New York, Ohio, and Pennsylvania as well as 20 Levitz stores in the same territory while Levitz would operate its 41 stores in Arizona, California, Nevada, and Oregon as well as three in the Minneapolis/St. Paul area. Seaman also will handle several administrative services for all of the stores, including management information systems, accounting, and human resources. Levitz declined through a spokesperson to offer additional details and Sea-man did not return a call. However, the plan suggests a synergistic solution for an awkward logistical problem at Levitz, which has one cluster of stores in the West, another in the Northeast, and nothing in between except the three Minnesota stores. Longer range, the combined companies could be in a position to fill in the gaps and press consolidation in furniture retailing, which is fragmented and is one of the few mass retailing sectors without a category killer. In tandem, Seaman and Levitz would operate the second-largest furniture chain in numbers of stores. The leader is Richmond, Va.-based Heilig-Meyers Co., which has more than 900 stores in 35 states but concentrates on smaller markets. Both Levitz and Seaman share common milestones in corporate transitioning, both having gone through LBOs and bankruptcy proceedings. Seaman has been free of Chapter 11 protection since 1992. Levitz, whose case is being handled by the Bank-ruptcy Court in Delaware, has been in Chapter 11 proceedings since September 1997.