CONTACT:
Richard A. Galanti
(206) 803-8163
FOR IMMEDIATE RELEASE
PRICECOSTCO ANNOUNCES INTENTION TO SPIN OFF
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COMMERCIAL REAL ESTATE OPERATIONS VIA EXCHANGE OFFER
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Kirkland, Washington; and San Diego, California-July 15,
1994--PriceCostco, Inc. (NASDAQ: PCCW) today announced its intention to
spin-off its commercial real estate operations, together with certain other
assets, into a newly formed company ("Newco"). The spin-off would be
accomplished by means of an exchange offer enabling each PriceCostco
shareholder desiring to invest in Newco to exchange one share of PriceCostco
stock for a share of Newco.
It is presently contemplated that approximately 27 million shares of Newco
would be offered in the exchange, representing 100% of the shares to be
outstanding. If the offer is over-subscribed, all tendering shareholders would
be prorated equally. There are currently approximately 217 million shares of
PriceCostco stock outstanding.
Final Board approval of the terms of the spin-off/exchange is expected
within the next several weeks after definitive documentation detailing the
assets to be included, the terms of certain operating and other agreements
between the companies and the number of shares of Newco to be issued have been
finally determined.
Included in the assets to be spun-off are the following:
(i) Commercial real estate: certain real estate not integral to
PriceCostco's merchandising operations, including commercial buildings under
lease to third party tenants, along with certain notes receivable;
(ii) Four warehouse properties: the transfer/leaseback of four existing
Price Club warehouses connected with the commercial properties being trans-
ferred in Westbury, NY; Pentagon City, VA; Wayne, NJ; and Morena Blvd., CA;
each of which will be leased back by PriceCostco;
(iii) Mexico operations: a 51% interest in PriceCostco's 50/50 Mexico
joint venture with a third party;
(iv) Certain international rights: a 51% interest in the merchandising
opportunities yet to be developed in certain other international markets
identified as Australia, New Zealand, the northern Mariana Islands, Central
America, certain islands east of Central America (excluding Puerto Rico) and
Bermuda;
(v) Quest Electronic Catalogue: a 51% interest in the Company's Quest
operations which consists of its in-store computerized kiosk shopping network
currently installed in 25 PriceCostco locations; and
(vi) Office space: certain office space in San Diego needed to run
Newco's operations.
The aggregate book value of the assets being spun-off as of May 8 was
approximately $617 million, after giving effect to expected write-downs to be
taken in the fourth quarter with respect to these assets. Based on the
proposed capitalization of Newco and the current market price for PriceCostco
shares ($ 14 11/16 on July 15) for which Newco's shares will be exchanged on a
one-for-one basis, PriceCostco would record a special charge of approximately
$230 million, since the spin-off would be treated as a disposition of assets
for accounting purposes. The special charge would reflect the difference
between the book value of the assets transferred and the market value of the
PriceCostco stock acquired in the exchange. A spokesman for the Company noted
that such a charge, the precise amount of which will be based on the fair
market value of the PriceCostco shares exchanged on the closing date of the
exchange offer, would be characterized as a loss on disposal of discontinued
operations and would be a one-time, nonrecurring, noncash charge to
PriceCostco. The exchange is intended to be nontaxable for federal income tax
purposes to the Company and to the exchanging stockholders, although the
closing of the exchange would not be conditioned on the transaction being
nontaxable or on ob-
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taining a ruling from the Internal Revenue Service that the exchange would be
considered nontaxable.
Jim Sinegal, Chief Executive Officer of PriceCostco and Robert Price,
Chairman of the Board of PriceCostco stated, "The proposed spin-off will allow
each of us to more autonomously pursue our areas of interest and should allow
for a more efficient utilization of the diverse management skills within the
Company. Under the terms of the merger between Price and Costco which led to
the current operating partnership under which the managements and boards of
Price and Costco were combined, certain philosophical differences developed
with respect to the two businesses regarding management strategies. Rather
than try to create one culture and set of priorities applicable to disparate
businesses, the PriceCostco Board determined that a better way to maximize
available business opportunities would be to operate the current businesses
as separate entities along the lines proposed. By effecting the spin-off as an
exchange offer, the structure would enable those shareholders who wish
to concentrate their investments in one segment versus the other, or to
allocate their investments between the two segments in any proportion that the
shareholder elects, to do so by either participating or refraining from
participating in the exchange offer."
Robert Price would be the Chief Executive Officer of Newco and Jim Sinegal
would remain Chief Executive Officer of PriceCostco. The Board of Directors of
Newco would initially consist of seven members, including Jim Sinegal and six
members designated by the current members of the PriceCostco Board who were
designated by The Price Company in connection with the merger of Price and
Costco. Upon consummation of the exchange, such designees of The Price
Company, other than Mr. Richard Libenson and a second designee, would resign
from the PriceCostco Board.
The assets and operations being spun-off constituted less than 10% of
PriceCostco's earnings on a pre-tax basis for the first three quarters of
fiscal 1994 (before the $120 million merger and restructuring charge recorded
at the time of the merger of Price and Costco), and the net assets represent
approximately 33% of the book value of the total net assets of PriceCostco.
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The transaction is being designed so as to not have an adverse impact on
the earnings per share (assuming moderate acceptance of the offer) or credit
standing of PriceCostco following the spin-off and is designed to be accretive
to the earnings per share of PriceCostco if the offer is fully subscribed.
If the exchange is undersubscribed, PriceCostco currently intends to
distribute the balance of shares in Newco as a dividend to the remaining
PriceCostco stockholders pro rata, or, if less than 20% have not been
exchanged, PriceCostco may at its option sell the retained shares to Newco at
the then current market in exchange for a promissory note.
If final Board approval of the spin-off/exchange is received, the
transaction is expected to close prior to the end of 1994.
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