Eddie Lampert’s hedge fund willing to buy businesses after Sears fails to find other buyers
Sears Holdings Corp. Chief Executive Edward Lampert is offering to purchase the Kenmore appliance brand and other Sears units after the struggling company was unable to find other buyers for the assets, breaking apart his retail empire in a bid to save it.
Lampert, through his hedge fund ESL Investments Inc., which currently owns a controlling stake in the retailer, said in a letter to the Sears board that ESL is willing to buy Sears’ home-improvement business and its Parts Direct business and is willing to submit a proposal to buy Kenmore.
Sears has been exploring strategic options for the units for nearly two years, but Lampert said in his letter that it has been unable to find a buyer.
“In our view, pursuing these divestitures now will demonstrate the value of Sears’ portfolio of assets, will provide an important source of liquidity to Sears and could avoid any deterioration in the value of such assets,” Lampert wrote.
The moves are an effort by Mr. Lampert to inject Sears with cash and stave off a bankruptcy filing, while at the same time allowing the hived-off businesses to grow by distributing their products and services beyond Sears and Kmart, according to people familiar with the matter.
Some critics, however, have argued that the strategy further weakens Sears by giving shoppers less reason to visit the retailer.
“Eddie is walking away with the good pieces, and leaving the doomed retail stores behind,” said Erik Gordon, a professor at the University of Michigan Ross School of Business. “He gets the other assets out from under the spectre of being reorganized in a bankruptcy filing.”
ESL also said it could offer to buy Sears’ real estate, including the USD 1.2 billion in debt associated with it. Sears could then lease the stores to keep running them.
Sears said in a news release Monday that a board committee is reviewing and considering ESL’s letter.
Lampert wrote that he and ESL President Kunal Kamlani, who is also a Sears director, would recuse themselves from the board’s deliberations. Any agreements would require approval of minority shareholders and be subject to a “go shop” period where Sears would solicit alternative offers, the letter states.
Sears’ depressed shares rose 4 % in early trading to USD 3.13. The stock was trading at USD 14 a year ago and more than USD 30 when Lampert took over as CEO in 2013. He has controlled the company since combining it with Kmart more than a decade ago.
Sears has been struggling with years of losses and shrinking sales under Mr. Lampert’s direction. The company has closed or sold off thousands of Sears and Kmart stores. Investors, suppliers and landlords have grown increasingly concerned about the company’s future, forcing Sears to pay cash upfront for many goods and ESL to regularly extend the company’s credit. Its Canadian arm filed for protection from creditors last year and decided to liquidate.
In the U.S., Sears remains one of the top sellers of appliances, although it has lost ground in recent years to Home Depot Inc., Lowe’s Co s. and other rivals. Kenmore is Sears’s house brand. It first appeared on a Sears washing machine in 1927. According to Sears, nearly one in every three American homes has a Kenmore appliance.Last year, Sears struck a deal to sell the Kenmore brand on Amazon.com Inc., broadening its reach beyond Sears and Kmart stores. It also began selling its DieHard batteries on Amazon. It sold its Craftsman brand to Stanley Black & Decker Inc., which is expanding distribution of the tools, lawn and garden equipment to other retailers.
Sears received about USD 900 million from the Craftsman deal, though some of the payments will come over several years and were earmarked for its pension fund. The company has also been exploring options for its Sears Auto Centers, DieHard battery brand and Innovel logistics business.
Lampert’s letter did not put a value on the Kenmore brand and Sears does not break out Kenmore revenues. Although most Kenmore laundry machines, stoves and other home appliances are currently sold inside Sears and Kmart stores, they are manufactured by other companies such as Whirlpool Corp. and Electrolux AB.
For the home improvement and parts businesses, Mr. Lampert said he was willing to pay about USD 500 million. He made the offer in connection with an offer to exchange about USD 300 million of secured debt for Sears equity and a tender offer to retire USD 900 million of unsecured debt at a discount to its face value.
In its last fiscal year, Sears reported a net loss of USD 383 million on revenue of USD 16.7 billion, with revenue down 25 % from the year earlier. Sears had USD 182 million in unrestricted cash and USD 4.13 billion in short and long term borrowings as of Feb. 3, according to its annual report.
A video on the history of Sears can be had here