Herman's changes hands; solution to debt sought - Taggart/Fasola Group acquires Herman's Sporting Goods Inc. from Isosceles PLC

Discount Store News, March 1, 1993 by Richard Halverson

CARTERET, N.J. - A three-year period of growth-stunting indecision for Herman's World of Sporting Goods may be coming to an end now teat it is getting its fourth owner in eight years.

On the other hand, another period of uncertainty may ensue as the latest owners attempt to restore the chain to profitability and wrestle with its debt load.

Effective March 8, Isosceles PLC, Herman's British owner, will transfer ownership of the 259-store chain to The Taggart/Fasola Group, an East Brunswick, N.J., management firm that lacks retail experience.

Isosceles, a British investment group, acquired Herman's in September 1989 when it bought Gateway PLC, its then-supermarket parent, through a highly leveraged buyout. It immediately began Herman's around.

Isosceles officially put Herman's on the auction block a year ago and let store count slip to 259 from 270.

In 1986, Gateway, formerly named Dee Corp., acquired Herman's through a $410 million tender for the then-public company and invested $50 million more in Herman's by acquiring Sunset Sporting Goods.

Herman's is being written down by several hundred millions as it again changes hands, and its new owners will be shouldering a heavy debt load, the former executive said.

Terms of the deal remain undisclosed, but the former executive, who maintains close ties with Herman's, put them at a maximum of $40 million in cash, plus the assumption of an undetermined portion of Herman's debt of an estimated $300 million.

The last three years has been "a period of uncertainty for Herman's that hopefully is behind it," said Al Fasola, president of Taggart/Fasola.

Isosceles has 90% of its assets and revenues wrapped up in food, rather than the sporting goods business, Fasola said. "What Herman's needs are owners with deep pockets who are willing to invest the capital needed to position the chain for the '90s," Fasola said.

He declined to disclose the purchase price or the amount of additional capital his firm is willing to invest in Herman's.

In announcing the purchase, Fasola described his group as having managed "a number of successful turn-arounds," including that of Purolator and Circle Express. He declined, however, either to characterize Herman's as another turnaround situation or to disclose whether Herman's lost money on its estimated sales of $600 million during the British fiscal year ended in April 1992.

Taggart/Fasola will be "repositioning the franchise so it will have the capital structure fitting Herman's strategy," Fasola said.

That strategy involves a multiformat approach that encompasses mall stores, strip center stores and superstores, such as the 50,000-sq.-ft. Paramus, N.J., store that does $10 million a year, he said.

"We see a lot of opportunity for larger stores in the northeast," he said. Herman's stores average 10,000 sq. ft.

The new owners will conduct a 30-day strategic and operating review as soon as the deal closes, Fasola said. Until then, it would be premature to talk about expansion plans, possible store closings or management changes, he indicated.

Taggart/Fasola reportedly is considering adding as many as 100 stores in the Boston-Washington, D.C., corridor over the next five years.

One of the major problems the new owners face will be the leases for stores Herman's either has closed or might close, said the former executive. The chain closed all five of its stores in Atlanta two years ago, for example, and still is paying rent on them, he said.

Landlords will be reluctant to let Isosceles and even W. R. Grace, which owned Herman's from 1970 to 1985, out of leases in favor of new investors who lack retailing experience, the executive predicted.

The chairman of Taggart/-Fasola, William F. Taggart, is best known as owner of the nation's largest driver training school, Taggart's Driving School.

Fasola minimized the lack of retailing experience of his group. "The management team at Herman's will be able to meet the test," he vowed.