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LifeStyle value plummets

Masco announces $460M writedown

Masco said last week it is taking a $460 million writedown of its stake in furniture and fabric manufacturer LifeStyle Furnishings International.

The writedown could open the door for the sale or other moves involving LifeStyle companies, although Masco executives declined to comment. Rumors have flown for weeks about the fate of the companies.

"LifeStyle Furnishings continues to operate profitably," Richard Manoogian, Masco chairman and chief executive officer, said last week in announcing the writedown along with Masco's third-quarter earnings. The writedown, part of $530 million in total non-cash charges, represents about three-fourths of the $600 million value that Masco had on its balance sheet for Furnishings International, the holding company for LifeStyle.

Manoogian didn't comment on whether Masco might dispose of its remaining stake in the home furnishings giant, the third-largest U.S. furniture manufacturer last year with estimated sales of $2 billion.

He did, however, exclude any financial contribution from LifeStyle in projections for Masco's future earnings. This year, LifeStyle has added about 2 cents per share to Masco earnings each quarter, he said. A Masco spokesman said the contribution was related to interest on the debt and that under accounting rules, the company can't book the contribution if it has doubts about the collectibility of the debt.

Most of Masco's stake in LifeStyle is debt, largely payment-in-kind notes. Masco also has a 15% equity stake in the furnishings company. It now values the debt and stock at about $130 million.

Alan Cole, president and CEO of LifeStyle, said Masco continues to be "supportive in every definition of the word." He declined to speculate on whether LifeStyle might sell any of its divisions.

"We're just forging ahead, and like everyone else we're trying to run our business very tightly," he said, noting that Manoogian described the company as profitable.

In 1996, Masco sold a majority stake in the furniture and fabric companies that made up its Home Furnishings division for $1.1 billion in cash and debt to an investment group led by a Citicorp Venture Capital fund and management of the companies sold. This summer, LifeStyle sold Universal to China-based Lacquer Craft.

LifeStyle's holdings include Drexel Heritage, Henredon, Maitland-Smith, La Barge, Lexington, BenchCraft and Berkline, and fabric companies including Robert Allen/Ametex and Sunbury.

One possible buyer of LifeStyle assets is Furniture Brands International, the second-largest U.S. furniture manufacturer after La-Z-Boy.

Analyst Margaret Whelan, who follows Furniture Brands for UBS Warburg, said in a research report that she "would not be surprised to see Furniture Brands acquire a strong regional retailer that would exclusively sell Furniture Brands product.

"Separately," she added, "current opportunities on the manufacturing side include the LifeStyle Furnishings companies, which are reportedly for sale at distressed valuations. Potential acquisitions of Henredon, Maitland-Smith, Drexel Heritage and/or Lexington could provide an entry point into higher-end case goods, upholstery and accessories."

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