General Mills to Return to Basics : Plans to Sell Fashion Division and Spin Off Toy Group

Directors of General Mills Inc. cleared the way Tuesday for a major restructuring of the Minneapolis-based company by giving the green light to sell its fashion division and approving a plan to spin off the toy group.

The company, which in January began exploring the divestiture of those businesses, also has decided to sell its We Are Sportswear retail chain in Southern California and said it may sell some restaurant operations, including the Good Earth.

As a result of the restructuring, General Mills expects a $113.8-million charge against third-quarter earnings, which will put the company in the red for the three-month period ended Feb. 24. The firm’s third-quarter results will be released later this week. In the third quarter of fiscal 1984, it earned $38.7 million on sales of $1.3 billion.

Clinton O. Mayer III, an analyst with New York-based Bear, Stearns & Co., said the third-quarter loss is “not particularly significant. The company has enough money to absorb a one-shot loss.” General Mills stock closed Tuesday on the New York Stock Exchange at $58.75 a share, up $1.75 on a volume of 244,000 shares.

When the changes are completed, General Mills will once again emphasize consumer foods and restaurants, which the company said will account for 90% of future sales and earnings. The rest will come from its specialty retailing group, which includes Talbot’s, Eddie Bauer and Wallpapers to Go.

In fiscal 1984, the toy and fashion divisions together accounted for one-fourth of General Mills’ sales and operating profits. The toy division had sales of $782.7 million in fiscal 1984 and the fashion group $587.4 million. General Mills had total sales of $5.6 billion in 1984 and pretax operating profits of $398.7 million.

“It’s back to their basic businesses, which give them better returns and are more predictable,” analyst Mayer said. “General Mills has had a lot of problems with its non-food business,” partly because of its inability to adjust to changing markets.

The fashion division, which includes Izod Lacoste and Ship ‘n Shore apparel, Monet Jewelers and Foot-Joy shoes, operated slightly above break-even in the first half because of a sharp decline in sales of Izod shirts with the little alligator logos. It had operating profits of $49 million in fiscal 1984.

The toy group, composed of Kenner Products, Parker Brothers and Fundimensions in the United States as well as operations in Europe, Australia, New Zealand, Canada and Mexico, has been improving, with operating profits in the first half 26% above last year’s level.

In 1984, the toy division suffered a decline in operating earnings because of problems in the video cartridge business.

Bruce Atwater, General Mills’ chairman, said in a statement that the fashion business will be sold to selected, unnamed prospective purchasers who have submitted preliminary bids. Formal offers are expected within 60 days, and the company plans to complete the sales this summer.

The anticipated $300 million in after-tax proceeds from the sale of the fashion business will be used to reduce debt, finance investment in existing operations, pay for acquisitions and buy back shares of General Mills.

Plans call for the toy division to be spun off into a separate company whose shares will be distributed on a pro-rata basis to General Mills shareholders. General Mills said it has received “expressions of interest above book value” for the toy group. But it decided that selling the business would be less attractive than a spinoff because large tax consequences would significantly reduce cash proceeds.

Will Announce Details

Final approval of a spinoff is subject to a favorable tax ruling that would make the transaction tax free for General Mills stockholders. Details of the plan, which is not subject to shareholders’ approval, will be announced in the “near future.”

The new toy company would continue under existing management, headed by James G. Fifield, now group executive vice president of General Mills in charge of nonfood business and former head of the toy group. E. Robert Kenney, former chairman of General Mills, would serve as chairman of the new firm’s finance committee.

Atwater said other plans designed to improve returns and enhance growth include converting some restaurants to its new Olive Garden Italian cuisine format and the possible sale of the remaining Casa Gallardo, Darryl’s and Good Earth restaurants.