Why Syms Corp. Should Sell Real Estate, Not the Company

Strapped for cash after its acquisition of Filene’s Basement in 2009, clothing retailer Syms Corp. announced last week it is considering selling the company, but some of its biggest minority shareholders, including hedge fund and activist investor Esopus Creek Value Series Fund LP sees greater value in the potential sale of its valuable real estate, particularly around New York.

This raises key issues: What is worth more – the company, or the sum of its prime location parts? How many other companies in the retail, restaurant and hospitality sectors are worth as much as real estate companies?

“In addition to its storied history, Syms has highly valuable real estate assets, including its flagship Lower Manhattan store, many of which house poorly performing stores,” says Martin Sklar, a partner at Kleinberg, Kaplan, Wolff & Cohen, P.C. (New York). “As a minority shareholder, Esopus sees much greater value in the separate sale of certain store locations than in the sale of the entire company."

In his role as legal counsel to Esopus, Mr. Sklar recently urged Syms CEO Marcy Syms to consider selling specific real estate assets over disposing of the entire company.

“Now that the Syms board of directors, in the face of mounting retail operating losses, is properly considering strategic alternatives, it would be unwise and premature for them to foreclose the option of separately selling off at least some of the Company’s real estate assets."

Additionally, Sklar notes that any sale of the company would not take into account the family-owned company’s undervalued stock price.

“Stock prices in family companies are typically undervalued due to the inherent lack of control that minority shareholders possess in such a situation,” he explains. “The company’s ownership by a single family and entrenchment of management is a major turn-off to potential investors, thus decreasing value.”

Sklar is available to discuss Esopus’ perspective as a three percent minority shareholder in Syms Corp., as well as how shareholders of family-owned companies can navigate the challenges of their role in today’s environment. [06/01/2011]